TRUST 
DISSOLUTION 


BY 


MERLE  RAYMOND  THOMPSON,  M.  A.,  Pn.D, 

Formerly  a  Fellow  in  Political  Economy,  State  Univer- 
sity of  Iowa;  Professor  of  Social  Sciences 
Morningside   College 


BOSTON 
RICHARD  G.  BADGER 

THE  GOBHAM   PRESS 


COPYRIGHT,    1919,   BY   RlCHARD   G.    BADGER 


All  Rights  Reserved 


-r* 


Made  in  the  United  States  of  America 


The  Gorham  Press,  Boston,  U.  S.  A. 


PREFACE 

The  control  of  concentrated  wealth  and  industry,  such 
as  is  represented  by  the  organization  and  aggregation  of 
capital  in  the  dominating  industrial  combinations  of  the 
present  day,  is  a  vital  and  complicated  problem  which  is 
engaging  the  attention  of  all  progressive  people.  The  aim 
of  this  book  is  not  to  justify  nor  to  condemn  any  policy 
towards  trust  combinations,  but  to  present  a  brief  survey 
of  the  efforts  made  to  enforce  the  trust  policy  of  the  federal 
government,  and  of  the  results  obtained  from  its  enforce- 
ment. After  briefly  surveying  the  trust  movement  and  the 
antitrust  legislation,  the  work  presents  a  concrete,  separate, 
And  concise  study  of  the  chief  monopolistic  combinations 
which  the  Government  has  or  is  now  trying  to  dissolve  under 
the  terms  of  the  trust  laws.  A  short  history  of  each  com- 
bination is  given  in  order  to  point  out  the  means  by  which 
the  monopolistic  control  was  created  and  maintained,  the 
extent  and  nature  of  the  control,  the  desirability  of  change 
or  dissolution,  and  the  elements  which  must  be  overcome  if 
competitive  conditions  are  to  be  restored.  Such  a  descrip- 
tion is  not  only  essential  to  an  understanding  of  the  na- 
ture and  effectiveness  of  the  dissolution,  but  it  shortens  the 
space  required  to  set  forth  the  facts  of  dissolution.  In 
some  cases,  after  such  a  history  is  given,  only  a  few  para- 
graphs will  be  necessary  to  make  clear  what  was  accomplished 
by  the  dissolution.  The  study  of  the  more  important 
cases  is  followed  by  brief  statements  of  other  decisions 
under  the  trust  laws.  While  the  legal  viewpoint  has  domi- 
nated in  most  of  the  dissolutions  and  many  references  to 
court  records  are  given  in  this  work,  the  study  is  approached 
from  the  economic  viewpoint.  In  its  preparation  the  writer 
has  felt  a  need  of  such  a  book  for  general  readers,  as  well  as 
students  of  economics,  who  are  interested  in  this  vital  and 
complex  national  problem. 

3 

4  *  >71.  o 


4  Preface 

The  time  for  closing  this  study  seemed  opportune  as  the 
Government  had  discontinued  trust  prosecution  pending  the 
duration  of  the  war,  and  the  writer  entered  the  army  service 
as  soon  as  the  manuscript  had  been  delivered  to  the  pub- 
lisher and  was  retained  in  it  into  1919,  thereby  preventing 
further  access  to  adequate  library  facilities.  Other  effects 
of  the  war  which  may  result  from  the  cessation  of  trust 
prosecution,  war-time  co-operation  and  control,  and  chang- 
ing views,  cannot  be  foretold  at  this  time. 

The  writer  wishes  to  express  his  indebtedness  to  Dr.  Eliot 
Jones  whose  criticism  and  profound  respect  for  facts  aided 
the  writer  during  the  first  several  years  of  this  research,  and 
to  Drs.  N.  R.  Whitney,  N.  A.  Brisco,  and  F.  E  Haynes 
for  helpful  criticism  and  correction  on  the  manuscript. 

M.  R.  T. 


CONTENTS 


CHAPTER  PAGE 

I     THE  DEMAND  FOR  TRUST  CONTROL 9 

II     DECISIONS  AND  DISSOLUTION  DECREES  UNDER  THE 

SHERMAN  LAW,  1890-1910 32 

EARLIEST  CASES 32 

THE  SUGAR  TRUST  DECISION 33 

THE  ADDYSTON  PIPE  AND  STEEL  COMBINATION 36 

THE  NATIONAL  HARROW  COMPANY     ..........  38 

THE  DISSOLUTION  OF  THE  NORTHERN  SECURITIES  COMPANY  .     .  39 

THE  MILES  MEDICAL  COMPANY 44 

THE  MEAT  PACKERS'  COMBINATION 44 

III  THE  DISSOLUTION  OF  THE  STANDARD  OIL  COMPANY  57 

IV  THE  DISSOLUTION  OF  THE  AMERICAN  TOBACCO  COM- 

PANY         108 

V     DECISIONS  SINCE  1911 146 

THE  ELECTRIC  LAMP  COMBINATION 146 

THE  DISSOLUTION  OF  THE  POWDER  TRUST 148 

THE  UNION  PACIFIC  RAILROAD  COMPANY 161 

THE  ANTHRACITE  COAL  COMBINATION 165 

VI  DECISIONS  SINCE  1911,  Continued 178 

THE  STANDARD  SANITARY  MANUFACTURING  COMPANY  ....  178 

THE  UNITED  SHOE  MACHINERY  COMPANY 180 

THE  ST.  Louis  TERMINAL  RAILROAD  ASSOCIATION 187 

THE  NEW  HAVEN  RAILROAD  COMPANY 189 

THE  NATIONAL  CASH  REGISTER  COMPANY 194 

THE  BURROUGHS  ADDING  MACHINE  COMPANY 201 

»THE  ALUMINUM  COMPANY  OF  AMERICA 201 

THE  NEW  DEPARTURE  MANUFACTURING  COMPANY       ....  204 

THE  NEW  YORK  COTTON  SPECULATORS'  POOL 206 

VII  IMPORTANT  CASES  AWAITING  SUPREME  COURT  DECI- 

SION    207 

THE  INTERNATIONAL  HARVESTER  COMPANY 207 

THE  UNITED  STATES  STEEL  CORPORATION 221 

5 


6  Contents 

CHAPTER  PAGE 

VIII     OTHER  CASES  AWAITING  DECISION 251 

THE  GREAT  LAKES  TOWING  COMPANY 251 

THE  EASTMAN  KODAK  COMPANY 252 

THE  MOTION  PICTURE  PATENTS  COMPANY 256 

THE  KEYSTONE  WATCH  CASE  COMPANY 258 

THE  CORN  PRODUCTS  REFINING  COMPANY 261 

THE  QUAKER  OATS  COMPANY 266 

THE  AMERICAN  CAN  COMPANY 267 

IX     OTHER  DECREES  AND  DECISIONS  UNDER  THE  TRUST 

LAWS 272 

(Grouped  according  to  service  or  commodity  involved.) 

UNION  LABOR 272 

COAL  AND  COAL  PRODUCTS 274 

FOODSTUFFS  AND  PRODUCE       .     '. 275 

LUMBER  AND  ITS  PRODUCTS 279 

PAPER  AND  PUBLISHING  SUPPLIES .  280 

MISCELLANEOUS  COMBINATIONS 282 

X     THE  EFFECT  OF  ANTITRUST  PROCEEDINGS       ...  287 

BIBLIOGRAPHY  305 


TRUST  DISSOLUTION 


TRUST  DISSOLUTION 

CHAPTER  I 

THE   DEMAND    FOE    TRUST    CONTROL 

THE  most  prominent  aspect  of  the  modern  trust  problem 
is  that  of  monopoly.  The  problem  of  monopoly,  how- 
ever, is  not  a  new  one.  It  has  existed  in  almost  all  epochs 
of  history,  as  the  legislation  against  efforts  to  obtain  mo- 
nopolies testifies.  The  nature  of  these  efforts  and  the  ex- 
tent to  which  monopolistic  conditions  have  prevailed  from 
time  to  time  have  been  determined  not  only  by  restrictive 
legislation  regulating  property  and  business,  but  also  by 
various  economic  conations.  Until  recently,  competition 
was  much  more  limited  locally  than  to-day.  Under  condi- 
tions of  domestic  production,  limited  and  costly  transpor- 
tation, inadequate  means  of  communication,  and  provincial 
customs  and  tastes,  competition  had  many  natural  limita- 
tions, and  efforts  to  secure  monopolies  consisted  largely  of 
local  understandings  among  competitors.  This  situation 
largely  prevailed  in  the  United  States  through  the  early 
part  of  the  nineteenth  century. 

The  character  of  monopolistic  efforts,  as  well  as  the  size, 
scope  and  organization  of  modern  business  units,  changed 
during  the  latter  part  of  the  nineteenth  century  to  meet  the 
wider  competition  which  resulted  from  the  development  of 
the  factory  system  of  production,  improved  means  of  trans- 
portation and  communication,  and  the  development  of  more 
liberal  laws  and  economic  doctrines  regarding  international 
trade.  The  recent  rise  of  large  combinations  and  monopolies 
in  the  leading  industrial  nations  has  followed  the  develop- 
ment of  extensive  competition.  The  trust  movement  in  the 


10  Trust  Dissolution 

\  i 

United  States,  beginning  about  1880,  was  preceded  by  a 
remarkable  era  of  railroad  expansion  and  the  extension  of 
markets  at  home  and  abroad.  The  failure  of  local  monop- 
oly under  these  changed  conditions  gave  rise  to  efforts  of 
combination  and  control  of  the  market  on  a  larger  scale. 

Modern  monopolies  may  be  divided  into  legal  and  indus- 
trial. The  former  are  based  upon  legal  restrictions.  Typi- 
cal examples  are  copyrights  and  patent  rights.  The  exclu- 
sive character  and  long  duration  of  patent  rights  have  made 
them  important  aids  in  obtaining  monopoly  control.  We 
show  later  how  several  important  industrial  monopolies 
were  built  up  and  maintained  largely  by  reliance  upon  them. 
Complete  monopoly  of  a  natural  resource  is  seldom  attained ; 
yet  a  number  of  important  monopolies  have  obtained  almost 
complete  control  of  natural  resources  or  raw  materials 
through  the  legal  right  of  private  ownership.  The  second 
class  of  monopolies,  the  industrial,  are  found  in  public  utili- 
ties and  in  the  so-called  "trusts."  In  this  study  we  are  not 
concerned  with  the  former,  except  in  the  case  of  a  few  rail- 
road combinations  which  are  taken  up  in  order  to  show  im- 
portant interpretations  of  the  anti-trust  laws  or  the  plan  of 
dissolution  employed.  The  attention  is  directed  chiefly  to 
the  industrial  trusts  which  are  usually  large  combinations  of 
competing  concerns  under  a  single  management.  The  es- 
sence of  industrial  monopoly  is  the  power  to  influence  ma- 
terially the  price  of  a  commodity  through  a  control  of  the 
supply.  It  is  dependent  upon  the  erection  of  barriers 
against  competition. 

Large  scale  production  should  not  be  confused  with  mo- 
nopoly. Large  scale  production,  so  characteristic  of  modern 
industry,  has  come  to  stay  because  of  increased  efficiency 
and  other  important  advantages,  but  large  scale  produc- 
tion does  not  necessarily  lead  to  monopoly.  How  far  effi- 
ciency resulting  from  concentrated  ownership  and  manage- 
ment leads  in  this  direction  cannot  be  definitely  determined 
from  the  data  at  hand ;  for  it  varies  in  different  industries. 
It  is  only  recently  that  the  special  investigations  by  the  Gov- 
ernment into  various  industries  have  given  much  attention 
to  the  comparative  efficiency  between  monopolistic  and  non- 


The  Demand  for  Trust  Control  11 

monopolistic  production.  The  findings  on  this  point  in 
regard  to  several  industries  will  be  noted  in  connection  with 
a  description  of  several  combinations.  More  facts  based 
upon  a  careful  and  comprehensive  investigation  of  the  ef- 
ficiency of  trusts  are  needed  for  arriving  at  definite  conclu- 
sions. So  far,  it  appears  that  there  are  few,  if  any,  indus- 
tries of  our  country  which  require  monopoly  control  to  se- 
cure the  greatest  economies  of  production.  The  trusts  have 
not  in  their  own  defence  shown  that  greater  efficiency  is 
the  motive  for  extreme  concentration  of  control.  Such 
proof  would  constitute  a  defence  which  could  only  be  at- 
tacked from  the  standpoint  of  public  policy. 

There  are  no  general  economies  of  production  applying 
to  all  industries ;  these  economies  are  different  for  each  kind 
of  industry,  and  can  be  secured  in  most  industries,  if  not  in 
all,  with  less  than  monopoly  control.  Each  industry  must 
be  studied  to  see  how  large  a  business  can  be  warranted  on  the 
sole  basis  of  economy  in  production.  A  large  proportion  of 
the  attempts  to  establish  monopolistic  control  have  ended 
in  failure.  Even  the  most  efficient  and  complete  trusts  have 
maintained  their  dominant  control  only  by  the  use  of  unfair 
methods  of  competition.  Our  trusts  have  not  been  built  up 
through  superior  efficiency.  The  eagerness  to  form  combi- 
nations larger  than  the  economies  of  production  warrant, 
has  not  been  primarily  to  effect  economies  or  social  gain. 
The  dominant  motives  have  been:  to  escape  competition, 
sometimes  ruinous  because  unfair  and  predatory;  to  secure 
the  benefits  of  rising  or.  raised  prices ;  to  acquire  power ;  and 
to  secure  through  stock-jobbing  schemes  or  otherwise  more 
immediate  profits  to  the  organizers  and  promoters.  The 
dominance  of  these  motives  in  forming  monopolistic  combi- 
nations is  concretely  shown  in  later  chapters. 

The  history  of  the  trust  movement  in  the  United  States 
may  be  conveniently  divided  into  five  periods.  During  the 
first  period,  extending  from  1880  to  1887,  various  pools  and 
the  Standard  Oil  trust  were  formed.  There  was  a  marked 
increase  in  the  size  and  number  of  large  scale  industrial 
organizations.  During  the  second  period,  continuing  from 
1887  to  1897,  the  Whiskey  and  Sugar  trusts  followed  the 


12  Trust  Dissolution 

example  set  by  the  Standard  Oil.  The  progress  of  the 
monopoly  movement  was  such  as  to  cause  most  of  the  states, 
as  well  as  Congress,  to  enact  anti-trust  laws  between  1889 
and  1893.  The  depression  during  the  latter  years  of  this 
period  checked  the  movement.  The  third  period  extended 
from  1897  to  1902.  It  was  characterized  by  the  greatest 
trust  movement  of  the  world's  history.  The  phenomenal 
prosperity  which  flooded  the  country  greatly  aided  the 
movement.  The  consolidation  craze  was  further  stimulated 
by  the  zeal  of  trust  promoters  and  by  the  failure  in  the 
Knight  case,  the  first  important  case  decided  under  the 
federal  antitrust  law,  to  declare  the  well  known  sugar  trust 
to  be  illegal.  The  greatest  activity  occurred  in  the  years 
1898  to  1901,  during  which  time  no  less  than  46  great  con- 
solidations were  formed.1  All  of  these  were  apparently  com- 
binations of  competing  enterprises  which  embraced  a  con- 
siderable part  of  the  total  business  in  their  respective 
branches  of  industry.  The  number  of  industrial  combina- 
tions controlling  two  or  more  plants,  increased  from  82, 
with  a  combined  capitalization  of  $1,196,724,310  on  Janu- 
ary 1,  1898,  to  318,  with  a  capitalization  of  $7,246,342,533 
on  January  1,  1904.2 

The  fourth  period  of  the  trust  history  extended  from 
1902  to  1911.  This  period  was  characterized  by  bitter 
experiences  for  those  supporting  the  trust  movement.  On 
the  one  hand  there  were  economic  and  financial  reactions  re- 
sulting in  panics,  bankruptcies,  and  investment  losses.  On 
the  other  hand  there  was  a  growing  demand  for  publicity, 
more  vigorous  trust  prosecution,  and  additional  antitrust 
legislation.  Special  investigations  of  well  known  trust  com- 
binations were  made  by  the  Government,  which  revealed  the 
existence  of  unfair  competition  and  other  evils  in  the  Meat, 
Sugar,  and  Oil  trusts.  The  more  vigorous  trust  prosecution 
following  the  condemnation  of  the  holding  company  as  a 
device  for  attaining  monopoly,  in  1904,  culminated  in  the 
Standard  Oil  and  American  Tobacco  decisions  in  1911.  The 
'restraining  influences  of  trust  prosecution  and  legislation 

1  Trust  Laws  and  Unfair  Competition,  1916,  pp.  12,  13. 
•Moody,  The  Truth  About  the  Trusts,  p.  486. 


The  Demand  for  Trust  Control  13 

upon  the  trust  movement  continued  in  the  fifth  period,  be- 
ginning with  1911.  Many  important  trust  combinations 
were  put  to  a  legal  test.  One  of  the  important  features  of 
this  period  was  the  legislation  passed  in  1914  supplement- 
ing the  antitrust  laws  and  establishing  the  Federal  Trade 
Commission  to  help  enforce  such  laws.  The  prosperity  and 
other  changes  resulting  from  the  European  war  are  affect- 
ing some  phases  of  the  trust  situation  in  the  United  States, 
but  it  is  too  early  to  arrive  at  conclusions  as  to  the  results 
that  may  follow. 

While  monopolistic  combinations  appeared  in  a  consid- 
erable portion  of  modern  industry,  it  should  be  remembered 
that  at  all  times  competition  has  prevailed  over  most  of  the 
industrial  field. 

The  form  of  monopolistic  organization  changed  from 
time  to  time.  This  was  due  in  part  to  the  change  in  size, 
scope,  and  organized  form  of  modern  business,  and  in  part  to 
the  antitrust  legislation  and  court  decisions,  which  declared 
certain  forms  of  monopolistic  organizations  to  be  illegal. 
New  forms  were  found  even  more  rapidly  than  the  older  ones 
were  declared  illegal.  The  earliest  forms  of  monopolistic 
combinations  were  pools.  These  were  direct  agreements  be- 
tween the  corporations  concerned.  Pools  were  numerous  and 
of  many  kinds,  depending  upon  the  nature  of  the  industry, 
business  habits,  and  the  laws  of  the  various  states. 

Among  the  pooling  arrangements  may  be  mentioned  the 
"gentlemen's  agreement"  which  fixed  the  selling  price  of  the 
output;  percentage  agreements,  limiting  the  business  of  each 
company  to  a  percentage  of  the  total  output ;  apportionment 
of  a  limited  output  among  the  separate  companies ;  the  use 
of  a  common  selling  bureau  which  should  receive  all  bids  and 
let  all  contracts;  a  division  of  the  markets  and  territory 
among  the  member  companies ;  a  division  of  profits ;  and 
patent  pools  in  which  the  patent  or  patents  of  an  industry 
were  made  the  basis  of  control.  The  pools,  while  sometimes 
of  long  duration,  were  in  most  industries  of  short  duration 
and  were  frequently  renewed  on  a  different  basis.  Their 
chief  weakness  was  in  the  lack  of  central  control  necessary 
to  hold  all  parties  to  the  agreements.  Their  illegality  in 


14  Trust  Dissolution 

most  states,  and  later  under  federal  laws,  was  a  great  source 
of  weakness.  The  pool  agreements  could  not  be  enforced  at 
law.  Despite  this  fact,  pools  are  still  the  most  common  and 
popular  means  of  limiting  competition. 

Next  in  order  of  time  was  the  trust  agreement,  or  the 
trustee  device.  Under  this  arrangement  the  stockholders  of 
the  corporations  party  to  the  trust  agreement  assigned  all 
their  stock  and  voting  rights  to  a  group  of  trustees  in  re- 
turn for  trust  certificates,  each  representing  a  fractional 
ownership  in  all  the  corporations  combined.  The  trustees 
had  the  sole  management  and  voting  power  of  the  corpora- 
tions, and  collected  all  the  dividends,  which  were  paid  out  pro 
rata  on  the  trust  certificates.  The  trustee  device  of  the 
Standard  Oil  is  a  typical  example  of  the  trust  agreement. 
Its  superiority  over  the  pool  was  due  to  its  centralized  and 
secret  control. 

In  the  late  '90's,  the  illegal  and  uncertain  trustee  ar- 
rangement gave  place  to  the  holding  corporation.  The 
holding  company  acquired  a  majority  of  the  shares  of  the 
constituent  companies.  It  possessed  the  advantages  of  the 
trustee  arrangement,  and  in  addition  had  a  perpetual  or- 
ganization, as  well  as  legal  standing  in  a  few  of  the  states. 
The  separate  corporations  retained  their  identity,  but  lost 
their  independent  action  when  a  bare  majority  of  their  shares 
was  purchased  directly  or  substituted  for  shares  of  the  hold- 
ing company,  and  came  wholly  under  the  control  of  the  di- 
rectors of  the  latter  company.  This  form  of  organization 
was  used  much  during  the  period  of  the  great  trust  move- 
ment. It  was  a  legal  form  of  corporation  in  some  of  the 
states,  easy  to  establish,  and  convenient  and  effective  in 
wielding  control. 

When  the  holding  company  as  a  means  of  attaining  mo- 
nopoly was  declared  illegal  in  1904,  trust  combinations 
tended  to  assume  an  informal  system  of  co-operation  or  took 
the  form  of  the  consolidated  corporation.  The  co-operative 
systems  aimed  to  unite  the  competitors  in  some  harmonious 
policy  regarding  the  volume  of  output,  and  prices,  through 
tacit  understandings  and  communications.  These  arrange- 
ments were  generally  known  as  a  "gentlemen's  agreement." 


The  Demand  for  Trust  Control  15 

Even  before  the  holding  company,  as  a  refuge  for  the 
trusts,  was  declared  illegal,  consolidation  into  a  single  huge 
corporation  had  become  an  approved  form  of  organization 
for  the  consolidation  of  large  interests.  In  the  consoli- 
dated corporation  the  separate  companies  to  be  brought 
together  were  purchased  directly  and  lost  their  identity. 
The  legality  of  monopoly  control  secured  through  consoli- 
dation has  not  been  determined.  If  it  is  declared  legal,  no 
matter  how  inclusive  its  control,  there  may  be  a  renewed 
movement  toward  the  concentration  of  industry. 

A  further  form  of  monopoly  control,  known  as  the  "com- 
munity of  interests,"  developed  in  connection  with  plans  of 
dissolution  employed  by  the  courts.  Under  this  form  of 
control  a  small  group  of  stockholders  obtain  a  majority 
stock  control  in  each  of  the  separate  corporations,  and 
rely  upon  their  common  interest  in  each  of  the  companies  to 
bring  about  unity  of  action  and  control. 

The  appearance  of  the  large  modern  trust  was  soon  fol- 
lowed by  a  demand  for  its  repression.  The  first  trusts  to 
appear  were  very  large,  and  dominated  important  indus- 
tries. They  were  at  once  conspicuous,  and  soon  became 
notorious  because  of  political  activities  and  other  evil  prac- 
tices. As  long  as  monopoly  was  in  the  hands  of  an  individual 
or  was  confined  to  a  locality,  it  did  not  greatly  concern  the 
community  as  a  whole,  but  a  monopoly  control  of  vast  ag- 
gregates of  capital  such  as  we  have  in  the  large  corporations 
aroused  the  public.  Here  we  have  the  dangerous  weapon  of 
monopoly  in  the  hands  of  so  powerful  a  giant  that  it  may 
well  become  the  cause  of  great  concern  to  the  whole  com- 
munity. Large  corporations  having  monopolistic  control  is 
the  crux  of  the  trust  problem,  and  legislation  against  trusts 
has  been  directed  against  the  monopolistic  feature  of  such 
organizations. 

The  present  legal  position  of  large  industrial  combina- 
tions in  the  United  States  can  best  be  presented  by  review- 
ing the  growth  and  enforcement  of  governmental  policies 
over  such  organizations  during  the  past  quarter  of  a  cen- 
tury. During  this  period  these  policies  have  been  deter- 
mined by  three  agencies:  by  Congress  in  the  enactment  of 


n 

16  Trust  Dissolution 

laws ;  by  the  President  in  the  administration  of  the  laws  and 
in  the  advice  he  gives  to  Congress;  and  by  the  Supreme 
Court  in  the  interpretation  of  the  laws  as  to  the  acts  and 
existence  of  combinations.  Behind  and  overshadowing  these 
agencies  is  the  indefinite  but  powerful  force  of  public  opin- 
ion, which,  however,  can  find  expression  only  through  one  of 
these  agencies. 

For  over  five  hundred  years  industrial  monopolies  have 
been  illegal  under  the  common  law,  which  forms  the  basis  of 
our  legal  system.  The  people  of  the  United  States,  in  ac- 
cordance with  their  traditional  individualism,  have  firmly 
stood  for  the  repression  of  monopoly,  even  in  governmental 
affairs.  With  the  increase  of  industrial  combinations  during 
the  eighties  and  nineties,  the  common  law  was  supplemented 
and  strengthened  by  numerous  statute  laws  passed  by  the 
states  and  Congress.  By  1893  all  the  states  of  the  Union 
except  six  had  antitrust  laws.  About  95  percent  of  the 
trusts  were  organized  under  the  laws  of  these  six  states 
which,  by  their  lack  of  co-operation,  rendered  ineffective 
the  laws  of  the  other  states. 

The  passage  of  the  Interstate  Commerce  Act  in  1887 
paved  the  way  for  federal  legislation  against  trusts.  This 
act  required  that  rates  in  interstate  commerce  should  be 
reasonable,  and  prohibited  discrimination  and  railway  pools. 
It  also  provided  for  an  Interstate  Commerce  Commission 
which  should  supervise  the  enforcement  of  the  law  and  decide 
complaints  regarding  rates  and  discrimination.  Just  as  the 
breakdown  of  state  control  over  railroads  brought  about 
federal  legislation,  so  the  breakdown  of  state  control  over 
trusts  led  to  the  passage  of  federal  antitrust  legislation. 
The  antitrust  sentiment  found  its  first  expression  in  the 
national  party  platforms  in  1888,  when  both  of  the  leading 
parties  were  pledged  to  bring  about  federal  legislation. 
Two  years  later  Congress  passed  the  Sherman  antitrust 
act.3  At  that  time  the  trust  movement  was  still  in  its  in- 
fancy. Of  the  important  trusts  then  in  existence  the  Sugar 
trust  was  dissolved  by  the  New  York  courts  in  1890;  the 
Oil  trust,  by  the  Ohio  courts  in  1892;  and  the  Whisky  trust, 
•26  Stat,  209. 


The  Demand  for  Trust  Control  17 

by  the  Illinois  courts  in  1896;  while  the  Tobacco  trust  merely 
dominated  one  branch  of  the  tobacco  business,  the  cigarette 
trade.  There  were  only  about  six  other  trusts,  all  of  which 
were  financially  unimportant,  hence  the  conditions  seemed 
highly  favorable  for  successful  federal  interference  and  con- 
trol. 

The  Sherman  law  was  very  comprehensive.  Section  1  de- 
clares that  "every  contract,  combination  in  the  form  of 
trust  or  otherwise,  or  conspiracy  in  restraint  of  trade  or 
commerce  among  the  several  states,  or  with  foreign  nations, 
is  hereby  declared  to  be  illegal.  Every  person  who  shall 
make  any  such  contract,  or  engage  in  any  such  combination 
or  conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor,  and, 
on  conviction  thereof,  shall  be  punished  by  fine  not  exceed- 
ing five  thousand  dollars  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of 
the  courts."  4 

,  Section  2  adds :  "Every  person  who  shall  monopolize,  or 
attempt  to  monopolize,  or  combine  or  conspire  with  any 
other  person  or  persons  to  monopolize,  any  part  of  the  trade 
or  commerce  among  the  several  states  or  with  foreign  na- 
tions shall  be  deemed  guilty  of  a  misdemeanor."  Violations 
of  this  section  are  punishable  the  same  as  under  Sec- 
tion 1.  Section  4  imposed  upon  the  district  attorneys  of 
the  United  States,  acting  under  the  direction  of  the  Attor- 
ney General,  the  duty  of  instituting  proceedings  in  equity 
to  prevent  and  restrain  violations  of  the  law,  and  it  invested 
the  Circuit  Courts  with  jurisdiction  over  these  suits,  and 
with  power  to  issue  temporary  or  permanent  injunctions  to 
secure  enforcement  of  the  act.  Section  6  provides  that 
any  property  owned  by  parties  to  the  combinations  forbid- 
den in  Section  1,  in  the  course  of  transportation  among  the 
states,  may  be  seized  and  condemned  like  property  imported 
into  the  country  contrary  to  law.  Section  7  permits  any 
person  injured  by  conduct  forbidden  in  the  act  to  recover 
triple  damages. 

A  study  of  the  congressional  debates  5  on  the  Sherman 

4  26  Stat.,  209. 
•Congressional  Record,  V.  21. 


18  Trust  Dissolution 

act  and  on  the  amendments  proposed,  convinces  one  that  the 
measure  as  finally  passed  represented  the  best  thought  of  the 
ablest  men  in  Congress.  There  was  an  unmistakable  deter- 
mination to  pass  a  law  that  would  put  an  end  to  the  trusts. 
The  statute  not  only  declared  illegal,  but  also  criminal, 
many  abusive  practices  for  which  the  trusts  were  notorious. 
All  infringements  of  its  provisions  were  declared  misdemea- 
nors punishable  by  imprisonment  as  well  as  by  fine.  Five 
distinct  methods  of  securing  the  enforcement  of  the  law  were 
provided,  together  with  specific  and  ample  penalties  to  make 
any  violation  of  the  law  a  serious  offence. 

Four  years  later  Congress  passed  additional  trust  legis- 
lation in  connection  with  the  Wilson  tariff  act  with  a  view 
to  preventing  combinations  in  restraint  of  trade  in  the 
foreign  commerce  of  the  country.  This  legislation  in  its 
phraseology  and  provisions  was  so  nearly  like  the  Sherman 
law  as  to  need  no  further  mention.6 

Although  the  Supreme  Court  upheld  the  constitutionality 
of  the  Sherman  law,  the  decision  in  the  first  trust  case  passed 
upon  by  this  court,  in  1894,  rendered  this  legislation  inef- 
fective. It  held  that  the  American  Sugar  Refining  Com- 
pany, since  it  was  only  a  "monopoly  of  the  manufacture"  of 
sugar,  was  not  a  violation  of  the  law,  which  prohibited 
monopoly  and  restraint  of  interstate  and  international  trade 
or  commerce.7  A  successful  monopoly  of  manufacture  was 
held  not  to  be  an  attempt  to  monopolize  commerce  even 
though,  in  order  to  dispose  of  its  product,  the  instrumental- 
ity of  commerce  was  necessarily  invoked.  Later  decisions 
of  this  court  in  1899,  1904,  and  1905  restored  partial  vital- 
ity to  the  act,  but  it  was  not  until  1911  that  the  effective- 
ness of  this  statute  over  industrial  combinations  was  prac- 
tically restored. 

Meanwhile,  in  the  absence  of  any  real  check,  the  num- 
ber, size,  and  centralization  of  control  of  industrial  combi- 
nations had  greatly  increased.  Many  of  these  were  very 
aggressive  and  secured  for  their  stockholders  immense 
profits  in  dividends  and  stocks.  It  is  true  that  there  were 

«28  Stat.,  570. 
T156  U.  S.  10. 


The  Demand  for  Trust  Control  19 

..,-•' 

prosecutions,  and  that  some  combinations  apparently  were 
successful.  Fear  of  prosecution  on  the  part  of  the  rest 
was  shown  in  the  fact  that  they  sought  new  forms  of  or- 
ganization different  from  those  declared  illegal.  Each  suc- 
ceeding form  involved  greater  difficulties  of  dissolution. 

The  failure  for  many  years  to  abolish  or  even  to  pre- 
vent a  large  increase  in  the  number  of  trusts  did  not  stir 
Congress  to  pass  any  important  trust  legislation.  It  was  the 
later  decisions  of  the  Supreme  Court  that  restored  vitality 
to  the  antitrust  acts.  Many  sporadic  attempts  were  made 
in  Congress  to  revise  or  amend  the  trust  laws.  Only  two 
of  these  partially  succeeded.  The  Industrial  Commission 
(1898-1902),  which  was  appointed  by  "Congress  to  investi- 
gate various  industrial  questions,  particularly  the  growth 
of  large  scale  corporations  and  trusts,  awakened  attention 
to  the  great  size  and  power  of  trusts  and  to  their  practices 
regarding  stock  watering,  promotion  profits,  and  unfair  com- 
petition.8 The  Commission  recommended  as  the  chief  measure 
of  reform  greater  publicity  under  federal  direction  and  con- 
trol. In  1903,  provision  was  made  for  a  Bureau  of  Corpora- 
tions, which  should  make  investigations  into  the  organiza- 
tion, condition  and  management  of  corporations  engaged 
in  interstate  commerce,  except  common  carriers,  in  order 
to  secure  data  and  information  to  guide  the  President  in  his 
recommendations  to  Congress  for  further  legislation.9  This 
was  a  proper  step  in  the  direction  of  publicity,  but  thejaow- 
ers  of  the  Bureau  were  inadequate  for  securing  satisfactory 
evidence.  Moreover,  it  was  left  to  the  President  to  decide 
what  information  thus  secured  should  be  given  to  the  public. 
In  the  same  year  an  expediting  act  was  passed,  which  gave 
priority  to  important  antitrust  suits  in  the  courts  in  order 
to  prevent  delays.  These  two  measures  were  relatively  un- 
important. Thus,  while  the  government  was  comparatively 
inactive  in  prosecuting  trusts  and  the  problem  was  as- 
suming larger  proportions,  Congress  passed  no  legislation 
for  thirteen  years,  and  no  important  legislation  for  twenty- 
four  years. 

"Reports   of   Industrial   Commission. 
•32  Stat.,  825. 


20  Trust  Dissolution 

The  unwillingness  to  enact  the  legislation  so  badly  need- 
ed, and  the  failure  to  accomplish  more  under  the  Sherman 
law,  must  be  largely  attributed  to  the  attitude  of  our  admin- 
istrations and  their  Attorney  Generals.  The  instituting  of 
suits  to  enforce  the  trust  laws  has  been  dependent  upon  the 
Attorney  Generals  who  in  turn  are  appointed  by  the  Presi- 
dents. The  Presidents  have  varied  in  their  attitude  towards 
the  trusts  and  the  enforcement  of  the  antitrust  laws.  The 
first  three  during  this  period,  Harrison,  Cleveland,  and  Mc- 
Kinley,  were  not  fitted  by  training  or  conviction  to  lead  the 
struggle  against  the  powerful  corporate  interests  which  op- 
posed the  enforcement  of  the  laws.  Neither  were  their  At- 
torney Generals  better  fitted  for  this  task.  The  failure  to 
win  the  first  important  suits  tried  under  the  Sherman  law  dis- 
couraged the  prosecutors.  President  Harrison  did  not  men- 
tion the  Sherman  act  in  any  of  his  messages  to  Congress  after 
its  passage,  and  his  Attorney  General  did  not  refer  to  it  until 
he  made  his  last  annual  report,  and  it  contained  no  con- 
structive suggestions.  Four  bills  in  equity  and  three  in- 
dictments were  instituted  under  the  Sherman  law  during 
Harrison's  administration.10 

President  Cleveland  did  not  take  up  the  trust  question 
until  in  his  last  message  to  Congress,  in  1896.  In  this  mes- 
sage he  deplored  the  accelerating  growth  of  trusts  and  the 
insufficiency  of  the  law,  which  did  not  reach  the  evil  accord- 
ing to  the  court's  interpretation.  He  then  expressed  his 
states'  right  position  by  declaring  that  on  account  of  the 
complexities  of  our  political  system  the  federal  government 
was  powerless  to  control  the  trusts  in  an  effective  manner, 
and  he  expressed  great  confidence  in  the  ability  and  willing- 
ness of  the  states  to  remedy  the  evils.  His  Attorney  Gen- 
eral in  the  annual  report  for  the  same  year  urged  certain 
changes  of  a  constructive  nature,  such  as  supplementing 
state  action,  compelling  witnesses  to  testify,  clarifying  the 
meaning  of  the  trust  laws,  and  creating  an  assistant  bureau 
or  department.  Only  four  bills  in  equity  and  two  indict- 
ments were  instituted  during  this  administration.11 

10  The  Federal  Antitrust  Laws,  1916,  pp.  44-46. 

11  The  Federal  Antitrust  Laws,  1916,  pp.  46-49. 


The  Demand  far  Trust  Control 


The  McKinley  administration,  which  was  much  occupied 
with  foreign  affairs,  was  extremely  lax  in  enforcing  the  trust 
laws.  The  President  did  not  mention  the  Sherman  law  in 
his  messages  to  Congress  until  December,  1899.  He  then 
referred  to  the  great  increase  of  industrial  combinations, 
and  recommended,  in  view  of  the  failure  of  state  control,  that 
Congress  extend  the  law  to  give  federal  control  over  these 
combinations.  The  Attorney  General,  Mr.  Briggs,  in  his 
report  for  the  same  year,  announced  that  the  department 
had  been  governed  only  by  the  sincere  effort  to  enforce  the 
law  as  it  existed,  and  to  avoid  subjecting  the  Government 
to  useless  expense  and  the  law  officers  to  humiliating  de- 
feat by  bringing  action  where  there  was  a  clear  want  of 
jurisdiction.  Due  to  the  President's  demand  for  legislation 
and  the  urgency  of  the  situation,  a  constitutional  amend- 
ment extending  federal  control  was  brought  to  a  vote  in 
Congress,  but  it  failed  of  passage  by  a  strictly  party  vote. 
Each  of  the  leading  parties  filed  a  report  on  the  proposed 
legislation.12  The  majority  report  (Republican)  claimed 
that  impotency  was  the  cause  of  failure  to  prevent  the 
trusts ;  that  the  problem  was  one  of  national  scope ;  and  that 
it  proposed  to  "regulate  monopolies."  The  minority  report 
opposed  each  of  these  contentions,  attributing  the  failure 
to  prevent  trusts  to  bad  faith  in  the  passage  and  adminis- 
tration of  the  laws,  as  well  as  to  the  tariff,  and  urged  both 
state  and  federal  control,  not  by  regulation,  but  by  the 
repression  of  monopolies. 

Only  three  bills  in  equity,  none  of  which  were  important, 
were  instituted  during  this  administration  of  more  than  four 
years.13  The  inactivity  of  the  Government  is  the  more  sig- 
nificant in  view  of  the  fact  that  this  was  the  period  of  the 
greatest  trust  movement  in  the  world's  history.  The  move- 
ment was  stimulated  by  the  decision  in  the  Sugar  trust 
case,  the  subsequent  cessation  of  government  prosecution, 
the  rapidly  rising  prices  accompanied  with  great  prosperity, 
and  especially  by  the  activities  of  trust  promoters.  The 
eagerness  to  form  trusts  was  not  primarily  to  effect  any 

"House  Report  No.  1501,  56th  Congress. 
"The  Federal  Antitrust  Laws,  1916,  pp.  49-50. 


88  4  Trust  Dissolution 

economic. or  sAei/l  gain  jfat  tcj,  secure  ;$ie  benefits,  of  rising 
prices,  and  also  the  immediate  profits  for  the  organizers 
and  promoters,  the  unsoundness  of  whose  promises  was  pain- 
fully revealed  to  the  investing  public  when  an  inevitable 
reaction  set  in  a  few  years  later  that  reached  a  crisis  in 
1907.  ' 

Presidei/^looseyelt  (1901-1909),  in  his  first  message  to 
Congress,  pomlfed  o'ut  tj*e  grea/  problem/|ri#sulting  from  the 
growth  of  consolidation,  ami  in  his  energetic  language  urged 
publicity  as  the  djily  sure  remedy.  Two  years  later  a  posi- 
tive step*waif-tfaken  in  this  direction  in  the  establishment  of 
the  &ttreath  x)£  Corporations.  The  expediting  act  was  also 
passed  the  same  year.  Following  the  passage  of  these  acts 
the  President  congratulated  Congress  and  expressed  a  feel- 
ing that  the  problem  was  nearly  solved  and  that  such  fur- 
ther slight  changes  as  were  needed  would  easily  be  secured.14 
But  in  his  1904  message  he  showed  a  growing  appreciation 
of  the  national  magnitude  of  the  whole  problem  and  the  need 
of  further  legislation.  In  his  later  messages  President 
Roosevelt  came  out  definitely  for  federal  regulation  by 
means  of  a  commission  which  should  have  control  of  ac- 
counting, publicity,  supervision,  issue  of  securities,  and  the 
prevention  of  rebates  anH  discriminations.  He  recognized 
some  trusts  as  being  "good"  and  others  as  "bad."  But  just 
as  this  strong  popular  1i3ministration  avoidecTthe  unpopu- 
lar, urgent  tariff  problem,  so  it  avoided  any  real  constructive 
effort  to  deal  with  the  trust  problem. 

There  were  three  Attorney  Generals  during  this  adminis- 
tration. The  first,  Mr.  Knox,  made  no  mention  of  the  trust 
question  until  his  report  for  1903  when  he  suggested  that 
;  the  $500,000  appropriated  in  that  year  to  enforce  the  anti- 
trust laws,  should  be  divided  up  for  other  purposes,  such 
as  public  land,  postal,  and  naturalization  frauds.  Later  in 
the  same  year,  by  request,  he  set  forth  his  trust  views.  He 
then  urged  federal  regulation,  and  held  that  monopoly  was 
impossible  if  unfair  discrimination  be  eliminated  and  proper 
publicity  provided.  To  secure  these  conditions  he  urged  that 
a  commission  with  adequate  powers  be  appointed.  Mr. 
"Congressional  Record,  V.  38,  pp.  2-3. 


The  Demand  for  Trust  Control  9& 

Moody,  who  succeeded  Mr.  Knox,  in  his  annual  report  for 
1906,  appeared  in  harmony  with  the  regulation  principle. 
He  held  that  there  were  three  defects  in  the  antitrust  law: 
its  indefinite  terms ;  the  forbidding  of  agreements  which  ran 
counter  to  the  tendencies  of  modern  business ;  and  the  insuf- 
ficient means  for  carrying  out  investigations.  Mr.  Bona- 
parte, who  followed  Mr.  Moody,  believed  further  legislation 
was  needed,  but  set  forth  no  constructive  program.  The 
only  interest  shown  by  Congress  during  the  last  four  years 
of  this  administration  was  in  ordering  a  number  of  investi- 
gations of  certain  trusts  to  be  made  by  the  Bureau  of  Cor- 
porations. During  this  administration  of  over  seven  years,  I 
eighteen  bills  in  equity,  twenty-five  indictments,  and  one  | 
forfeiture  proceeding  were  instituted.15 

President  Taft's  administration  witnessed  the  most  vig- 
orous prosecution  of  the  trusts  since  the  passage  of  the  anti- 
trust act.  Mr.  Taft  had  been  trained  in  legal  procedure.  ' 
As  a  Circuit  Court  judge,  he  had  rendered  the  decree  of 
dissolution  for  the  Addyston  Pipe  Combination.16  After 
the  tariff  question  was  disposed  of,  the  President,  in  a  special 
message  to  Congress,  clearly  set  forth  his  views  and  recom- 
mendations regarding  trusts.  He  explained  the  chief  reasons 
for  creating  large  combinations.  Of  these  he  held  there  were 
three :  the  possibility  of  great  economies ;  the  reduction  of 
excessive  competition;  rnd  the  possibility  of  securing  a 
monopoly  and  controlling  prices  and  rates.  Mr.  Taft  also 
gave  three  conclusions  as  to  the  construction  of  the  Sher- 
man act  :17  first,  we  must  infer  that  the  evil  aimed  at  was  not 
the  mere  bigness  of  the  enterprise  but  it  was  the  aggregation 
of  capital  and  plants,  with  the  expressed  or  implied  intent 
to  restrain  interstate  or  foreign  trade,  or  to  monopolize  it 
in  whole  or  in  part ;  second,  a  combination  which  only  inci- 
dentally, and  not  inevitably  or  directly,  restrained  trade,  did 
not  fall  within  the  act;  and  lastly,  the  act  was  not  to  inter- 
fere with  a  great  volume  of  capital  concentrated  under  one 
organization,  which  reduced  the  cost  of  production  and 

16  The  Federal  Antitrust  Laws,  1916,  pp.  50-61. 
"85  Fed.  Rep.  271. 

17  House  Report,  Doc.  No.  484,  61st  Cong.,  2nd  Sess. 


24<  Trust  Dissolution 

made  its  profits  thereby,  and  took  no  advantage  of  its  size  to 
stifle  competition.  The  President  then  recommended  and  had 
presented  a  federal  incorporation  bill  which  was  designed 
to  bring  all  corporations  doing  interstate  business  under 
federal  control  and  supervision  as  to  their  issues  of  securi- 
ties, reports,  and  interholding  of  stock.  Although  the  Presi- 
dent worked  consistently  for  this  law,  it  was  never  passed. 
He  urged  that  no  change  be  made  in  the  Sherman  act,  and 
that  it  be  vigorously  enforced.  The  Standard  Oil  and 
American  Tobacco  decisions  of  1911  were  proclaimed  epoch- 
making  in  his  message  in  December.  His  Attorney  General, 
Mr.  Wickersham,  in  his  first  two  annual  reports,  simply  an- 
nounced that  he  was  following  the  policy  of  his  predecessors 
towards  combinations.  In  his  next  annual  report  he  de- 
clared that  the  Government's  dissolution  policy  was  to  create 
new  conditions  so  that  no  company  would  have  enough  busi- 
ness of  any  one  kind  to  threaten  or  accomplish  monopoly. 
In  his  last  report  he  seemed  well  pleased  with  the  Sherman 
act  and  urged  that  it  should  not  be  made  specific  by  enu- 
merating the  practices  which  would  be  held  illegal.  During 
this  administration  forty-six  bills  in  equity,  forty-three  in- 
dictments, and  one  contempt  proceeding  were  instituted.18 
During  the  Taft  administration,  a  United  States  Senate 
committee  of  sixteen  members  was  appointed  and  given 
large  powers  and  means  to  inquire  and  report  to  the  Senate 
'  what  changes  were  desirable  or  necessary  in  the  laws  relating 
to  the  creation  and  control  of  corporations  engaged  in  in- 
terstate commerce.19  In  this  report,  covering  2,799  printed 
pages  of  hearings,  reports  and  testimony,  the  committee 
emphatically  declared  that  the  Sherman  law  should  remain, 
and  that  every  possible  effort  be  made  to  create  and  pre- 
serve competitive  conditions.  The  committee  was  opposed 
to  a  general  federal  incorporation  law,  but  recommended  a 
federal  commission  and  pointed  out  some  of  the  advantages 
to  be  derived  from  such  a  body. 

The  trust   agitation,   ripened   through  long  experience, 

"The  Federal  Antitrust  Laws,  1916,  pp.  61-68. 

19  Hearings  before  the  Committee  on  Interstate  Commerce  on  the  Con- 
trol of  Corporations,  Persons,  and  Firms  engaged  in  Interstate  Com- 
merce, 1911-1912,  Vols.  1,  11. 


The  Demand  for  Trust  Control 


25 


became  crystallized  in  the  legislation  passed  under  the  Wil- 
son administration.  Both  of  the  leading  parties  by  their 
platform  declarations  of  1912  were  committed  to  bring  about 
a  national  trade  commission.  After  the  tariff  and  banking 
legislation  had  been  disposed  of,  President  Wilson,  on  Janu- 
ary 20,  1914,  gave  a  masterly  address  before  Congress  con- 
cerning needed  trust  legislation.20  Besides  other  features 
which  were  in  harmony  with  the  legislation  as  passed,  he 
offered  for  consideration  the  requirement  that  owners  of 
stock,  when  their  voting  power  in  several  companies  which 
ought  to  be  independent  of  one  another  would  constitute 
actual  control,  be  made  to  choose  in  which  company  they 
would  exercise  their  voting  right. 

The  trust  legislation  passed  in  1914  consisted  of  two  acts, 
the  Clayton  Antitrust  act  21  and  the  Federal  Trade  Com- 
mission act,22  the  former  Being  supplementary  to  the  existing 
laws  against  restraints  and  monopolies.  In  outlining  the 
provisions  of  these  acts  we  are  only  concerned  with  those 
which  are  important  in  connection  with  the  antitrust  laws 
and  their  enforcement. 

The  Clayton  act  contained  provisions  against  unfair 
methods  of  competition  and  against  combination  in  restraint 
of  trade.  The  unfair  methods  declared  unlawful  included 
price  discrimination  and  restrictive  sales  or  leases,  where 
their  effect  is  to  substantially  lessen  competition  or  tend  to 
create  a  monopoly  in  any  line  of  commerce.  Section  2  of 
the  act  declares  it  unlawful  for  any  person  engaged  in  com- 
merce to  discriminate  in  price  either  directly  or  indirectly, 
between  different  purchasers  of  commodities  sold  for  use, 
consumption,  or  resale,  within  the  federal  jurisdiction,  where 
the  effects  of  such  discrimination  may  be  to  substantially 
lessen  competition  or  tend  to  create  a  monopoly  in  any  line 
of  commerce:  provided  that  this  shall  not  prevent  discrimi- 
nation in  prices  made  on  account  of  differences  in  quality  or 
quantity  of  the  commodity  sold,  or  on  account  of  differ- 
ences in  costs  of  selling  or  transportation,  or  in  order  to 
meet  competition,  in  good  faith ;  and  provided  further,  that 

20  Cong.  Rec.,  Jan.  20,  1914,  pp.  1978-9. 

31  38  Stat.,  717-724. 

22  38  Stat.,  730-740. 


26  Trust  Dissolution 

this  shall  not  prevent  persons  from  selecting  their  own  cus- 
tomers in  bona  fide  transactions  not  in  restraint  of  trade. 
The  prohibition  of  this  section  is  limited  in  scope  by  each 
of  the  provisos,  and  by  the  clause  declaring  that  price  dis- 
crimination is  unlawful  only  where  the  effect  may  be  to 
substantially  lessen  competition  or  tend  to  create  a  mo- 
nopoly. 

Section  3  declares  it  unlawful  for  any  person  engaged  in 
commerce  to  lease  or  make  a  sale  or  contract  of  sale  of 
commodities,  patented  or  unpatented,  for  use,  consumption, 
or  resale,  or  to  fix  a  price  therefor  or  a  discount  from  such 
price,  on  the  condition  or  understanding  that  the  lessee  or 
purchaser  shall  not  use  or  deal  in  the  commodities  of  a  com- 
petitor, where  the  effect  of  the  sale  or  conditions  may  be  to 
substantially  lessen  competition  or  tend  to  create  a  mo- 
nopoly. 

One  of  the  provisions  against  combinations  in  restraint  of 
trade  prohibited  inter-corporate  stockholding  (only  future 
changes  of  stock  being  affected)  where  the  effect  may  be  to 
substantially  lessen  competition  with  or  between  the  cor- 
porations whose  stocks  are  acquired,  or  tend  to  create  a 
monopoly.  This  prohibition  does  not  apply  to  mere  in- 
vestment by  one  corporation  in  the  stock  of  another  or  to 
the  formation  of  subsidiary  corporations,  or  to  common  car- 
riers in  extending  their  lines,  where  the  effect  is  not  to  sub- 
stantially lessen  competition.  It  was  aimed  at  combina- 
tions in  restraint  of  trade  through  stock  ownership  in  the 
form  of  a  holding  company  or  otherwise.  It  should  be 
noted  that  this  refers  only  to  corporations,  and  does  not 
forbid  community  of  stock  ownership  by  individuals.  The 
act  also  prohibits  all  corporations,  except  banks  and  com- 
mon carriers,  which  have  a  capital,  surplus  and  undivided 
profits  exceeding  $1,000,000,  from  having  common  directors 
after  two  years  from  the  passage  of  the  law,  if  such  cor- 
porations are  or  have  been  competitors  so  that  the  elimina- 
tion of  competition  between  them  would  constitute  a  viola- 
tion of  the  antitrust  laws.  Whether  this  prohibition  of  in- 
terlocking directorates  will  increase  the  number  of  dummy 
directors  remains  to  be  seen. 


The  Demand  for  Trust  Control  £7 

The  sections  of  the  act  described  above  contain  no  penal 
provisions,  but  are  enforceable  through  court  injunctions, 
suits  in  equity,  and  recovery  of  triple  damages  by  persons 
injured  through  their  violation.  The  federal  courts  are 
given  a  jurisdiction  concurrent  with  that  of  the  Federal 
Trade  Commission,  the  Federal  Reserve  Board,  and  the  In- 
terstate Commerce  Commission,  respectively,  in  the  enforce- 
ment of  the  foregoing  sections.  It  was  left  to  these  respec- 
tive bodies  to  initiate  proceedings  whenever  they  have  reason 
to  believe  there  are  violations.  The  form  of  procedure  is  prac- 
tically the  same  in  each  case  as  is  outlined  below  for  the 
Federal  Trade  Commission  with  respect  to  unfair  methods 
of  competition. 

Section  6  decreases  the  legal  restrictions  upon  labor 
unions  and  other  associations  not  having  capital  nor  being 
conducted  for  profit.  It  declares  that  labor  is  not  a  com- 
modity or  article  of  commerce,  and  that  nothing  in  the 
antitrust  laws  shall  be  construed  to  forbid  the  lawful  exist- 
ence of  such  organizations  or  the  carrying  out  of  legitimate 
objects.  Section  20  provides  that  in  any  case  between  em- 
ployer and  employees  relating  to  or  growing  out  of  a  dis- 
pute as  to  the  terms  of  employment,  the  courts  shall  not 
issue  injunctions  unless  necessary  to  prevent  irreparable  in- 
jury to  the  property  rights  of  the  applicants.  It  also  pro- 
vides that  an  injunction  shall  not  prohibit  any  person  or 
persons  from  ceasing  to  work  or  persuading  others  to  do  so 
by  peaceful  means;  or  from  attending  at  any  place  where 
he  may  lawfully  be  in  order  peaceably  to  communicate  in- 
formation or  to  persuade  any  person  to  abstain  from  work- 
ing; or  from  ceasing  to  patronize  or  employ  any  party  to 
such  dispute,  or  persuading  others  thereto  by  peaceful 
means ;  or  from  paying  or  withholding  strike  benefits ;  or 
from  peaceably  assembling  in  a  lawful  manner  for  lawful 
purposes.  It  further  declared  that  none  of  these  specific 
acts  shall  be  held  to  be  illegal.  The  provisions  of  this  sec- 
tion were  intended  to  limit  the  use  of  injunctions  in  labor 
disputes  particularly  with  respect  to  "picketing  and  boy- 
cotting." 

Other  provisions  of  the  act  relating  to  the  enforcement 


28  Trmt  Dissolution 

of  the  trust  laws  may  be  briefly  passed.  Section  4  pro- 
vides that  any  person  injured  in  his  property  by  acts  for- 
bidden by  the  antitrust  laws  may  recover  three-fold  dam- 
ages. Section  5  declares  that  a  final  decree  in  a  proceeding 
in  equity  brought  by  the  Government  under  the  antitrust 
laws  shall  be  prima  facie  evidence  against  the  defendant  in 
any  suit  brought  by  any  other  party  under  those  laws,  with 
respect  to  all  matters  in  which  the  decree  would  be  an 
estoppel  between  the  parties.  This  does  not  apply  to  consent 
decrees  which  are  entered  without  the  taking  of  testimony 
or  to  such  decrees  in  certain  other  cases.  Section  14  provides 
that  when  a  corporation  has  violated  penal  provisions  of  the 
laws,  its  directors  and  agents  authorizing  or  committing  the 
violation  shall  be  held  guilty  of  a  misdemeanor.  Section  15 
makes  it  the  duty  of  the  several  district  attorneys  and  the 
Attorney  General  to  institute  proceedings  and  bring  suits 
in  equity  to  enforce  the  act.  Section  16  gives  the  right  to 
relief  by  injunction  for  threatened  loss  or  damage  by  a  vio- 
lation of  the  antitrust  laws. 

The  Federal  Trade  Commission  act  was  by  far  the  most 
important  part  of  the  legislation.  It  created  a  non-parti- 
san commission  to  be  known  as  the  Federal  Trade  Commis- 
sion, consisting  of  five,  members  appointed  by  the  President 
with  the  consent  of  the  Senate.  The  commissioners,  ap- 
pointed for  terms  of  seven  years  with  an  annual  salary  of 
$10,000,  are  forbidden  to  engage  in  any  other  business  or 
employment.  The  act  abolished  the  Bureau  of  Corporations, 
all  of  whose  employees,  records,  papers,  and  appropriations 
were  transferred  to  the  Commission. 

Both  administrative  and  quasi- judicial  functions  were 
given  the  Commission.  Section  5  declares  unfair  methods 
of  competition  in  commerce  unlawful,  and  empowers  and 
directs  the  Commission  to  prevent  such  practices  by  all  per- 
sons and  corporations,  except  banks  and  common  carriers. 
To  this  end  the  Commission  is  authorized  after  due  hearing 
to  issue  orders  requiring  the  cessation  of  unfair  methods  of 
competition.  To  secure  the  enforcement  of  its  order  the 
Commission  may  apply  to  the  federal  courts,  submitting  the 


The  Demand  for  Trust  Control  29 

entire  record  of  the  case,  and  the  court  may  affirm,  modify, 
or  set  aside  such  order.  In  case  it  is  desired  to  introduce 
new  evidence  before  the  court,  the  court  may  allow  it  and 
may  order  that  it  shall  be  taken  before  the  Commission. 
The  findings  of  the  Commission  as  to  the  facts,  if  supported 
by  testimony,  are  final,  and  the  decisions  of  the  Circuit  Court 
of  Appeals  are  final,  subject  to  review  by  the  Supreme 
Court.  Any  party  required  to  cease  using  unfair  methods 
of  competition  may  obtain  a  court  review  in  a  similar  man- 
ner. The  initiative  in  bringing  proceedings  by  the  Commis- 
sion to  prevent  unfair  methods  was  left  entirely  with  the 
Commission,  which  could  do  so  whenever  it  believed  such  pro- 
ceedings would  be  to  the  public  interest.  This  section  of  the 
act,  which  was  intended  in  part  to  prevent  the  development 
of  monopolistic  conditions,  was  of  great  importance  in  view 
of  the  part  played  by  unfair  methods  of  competition  in  se- 
curing and  maintaining  monopolistic  control. 

Section  6  conferred  on  the  Commission  the  following 
powers,  among  others  :  ( 1 )  to  investigate  the  organization, 
business,  management,  etc.,  of  any  corporations  engaged  in 
commerce,  except  banks  and  common  carriers;  (2)  to  re- 
quire such  corporations  to  make  annual  and  special  detailed 
reports;  (3)  to  investigate  and  report  to  the  Attorney  Gen- 
eral on  the  manner  in  which  antitrust  decrees  are  being  or 
have  been  carried  out;  (4)  to  investigate  and  report  on 
alleged  violations  of  the  antitrust  laws  upon  the  request  of 
the  President  or  either  House  of  Congress;  (5)  to  investi- 
gate and  make  recommendations  concerning  the  readjust- 
ments of  the  business  of  any  corporation  alleged  to  be  vio- 
lating the  antitrust  acts,  upon  the  application  of  the  At- 
torney General;  (6)  to  make  public  information  obtained, 
except  trade  secrets  and  names  of  customers,  to  make  special 
and  annual  reports  to  Congress  with  recommendations  for 
additional  legislation,  and  to  publish  its  reports  and  de- 
cisions in  ways  best  adapted  to  public  information  and  use; 
(7)  to  classify  corporations  and  make  rules  and  regulations 
for  carrying  out  the  provisions  of  the  laws;  (8)  to  investi- 
gate trade  conditions  in  and  with  foreign  countries  where 


30  Trust  Dissolution 

combinations,  or  practices  of  manufacturers,  or  other  con- 
ditions, may  affect  the  foreign  trade  of  the  United  States, 
and  to  report  and  make  recommendations  to  Congress. 

Section  7  provides  that  where  suits  in  equity  are  brought 
under  the  trust  laws  and  the  court  believes  that  relief  should 
\  be  granted,  the  court  may  refer  the  suit  to  the  Commission, 
!  acting  as  a  master  in  chancery,  to  report  an  appropriate 
form  of  decree;  but  the  court  may  reject  the  Commission's 
report  and  enter  a  decree  according  to  its  own  judgment. 
The  need  for  such  an  experienced  body  to  assist  in  framing 
decrees  which  call  for  the  reorganization  of  vast  and  com- 
plex business  organizations  had  become  plainly  imperative 
as  a  result  of  failure  of  early  dissolution  plans  employed. 
How  frequently  the  courts  will  call  upon  the  Commission 
for  such  services,  and  to  what  extent  they  will  be  guided  by 
its  reports,  are  important  questions  whose  answers  will  be 
closely  watched.  A  failure  of  the  courts  to  co-operate  with 
the  Commission  may  mean  additional  legislation  on  this 
point. 

In  1916  considerable  effort  was  made  in  Congress  to 
pass  a  bill  exempting  combinations  and  corporations  formed 
for  the  purpose  of  conducting  and  promoting  foreign  trade 
from  the  operations  of  the  antitrust  laws.  This  movement 
had  the  support  of  the  President  and  the  Federal  Trade 
Commission.  The  Webb  bill  authorizing  such  changes  was 
/  passed  by  the  House  but  did  not  come  up  for  a  vote  in  the 
Senate.  In  the  same  year  the  Stevens  bill,  designed  to  per- 
mit manufacturers  to  fix  and  maintain  uniform  resale  prices 
for  their  products,  received  much  discussion  in  and  out  of 
Congress,  but  it  was  not  passed. 

It  is  the  purpose  in  the  following  chapters  to  trace  the 
progress  made  in  dissolving  monopolistic  combinations  by 
a  concrete  study  of  the  more  important  dissolutions.  In 
general  the  cases  will  be  treated  in  their  chronological  order. 
A  brief  history  or  description  of  each  case  will  be  given  in 
order  to  point  out  the  means  by  which  the  monopolistic  con- 
trol was  created  and  maintained,  the  extent  and  nature  of 
the  control,  the  desirability  of  dissolution,  and  the  elements 


The  Demand  for  Trust  Control  81 

which  must  be  overcome  in  order  to  restore  competitive  con- 
ditions. It  is  believed  that  such  a  description  is  not  only 
essential  to  an  understanding  of  the  nature  and  probable 
effectiveness  of  the  dissolution,  but  that  it  will  also  shorten 
the  space  required  to  set  forth  the  facts  of  dissolution.  In 
some  cases,  after  a  brief  history  is  given,  only  a  few  lines 
will  be  necessary  to  make  clear  what  was  done  in  the  way  of 
dissolution.  The  description  will  usually  be  followed  by  a 
consideration  of  the  dissolution  and  its  probable  or  proved 
effectiveness.  The  concrete  study  of  the  more  important 
cases  will  be  followed  by  a  chapter  giving  brief  statements 
of  other  cases  brought  to  issue  under  the  trust  laws. 

Much  attention  is  given  to  the  dissolution  decrees  and  de- 
cisions of  the  Supreme  Court  which  have  largely  determined 
the  status  of  trust  combinations.  Congress,  Presidents,  and 
Attorney  Generals  come  and  go  with,  at  most,  only  a  brief 
time  in  which  to  attempt  to  solve  the  trust  problem,  but 
the  Supreme  Court,  with  a  fairly  constant  personnel,  has 
been  constantly  confronted  with  the  trust  problem  in  all  its 
phases.  This  Court,  in  addition  to  other  tasks  that  pile 
up  faster  than  they  can  be  analyzed,  has  been  burdened 
with  the  rapidly  growing  problem  of  controlling  concen- 
trated wealth  and  industry,  one  of  the  most  vital  and  in- 
tricate of  our  national  problems,  and  one  which  demands 
experts  for  its  solution. 


CHAPTER  II 

DECISIONS    AND    DISSOLUTION    DECREES    UNDER    THE    SHERMAN 

LAW  1890-1910 

THE  first  suit  filed  under  the  Sherman  law  was  against 
the  Nashville  Coal  Exchange  which  was  composed  of  var- 
ious coal  mining  companies  in  Kentucky  and  Tennessee  and 
of  coal  dealers  in  Nashville.  The  exchange  was  formed  for 
the  purpose  of  fixing  prices  and  regulating  the  output  of 
coal.  In  1891,  the  Circuit  Court  declared  the  combination 
to  be  illegal  and  enjoined  its  continuance.1  No  appeal  was 
taken  from  this  decree. 

The  first  important  suit  filed  under  the  law  was  against 
the  Whisky  Trust  (the  Distilling  and  Cattle  Feeding  Com- 
pany), which  was  organized  in  1887,  and  which  was  a  very 
large  and  well  known  trust  in  the  early  days  of  industrial 
concentration.2  By  means  of  the  "trustee  device"  the  prop- 
erties and  management  of  seventy-two  distilling  companies 
were  turned  over  to  a  group  of  trustees  in  exchange  for  cer- 
tificates representing  equities  in  the  combined  properties. 
The  certificates  formed  the  basis  upon  which  the  dividends 
were  distributed.  Under  this  central  control,  sixty  of  the 
companies  were  discontinued  and  the  business  of  the  trust 
was  confined  to  the  remaining  twelve.  In  1892  the  Govern- 
ment filed  suit  against  the  combination,  but  the  charges  were 
quashed  in  the  Circuit  Court  on  the  ground  that  they  failed 
to  set  forth  an  indictable  offense.3  What  seems  more  sig- 
nificant than  this  initial  defeat  was  the  abandonment  of 
all  further  attempt  to  prosecute  the  Whisky  trust.  After 
becoming  involved  in  financial  difficulties  the  trust  was  dis- 
solved in  1896. 

*46  Fed.  Rep.  432. 
»50  Fed.  Rep.  469. 
•50  Fed.  Rep.  471. 

32 


Decisions  and  Dissolution  Decrees  33 

The  second  important  industrial  suit  was  against  the 
National  Cash  Register  Company.  This  company,  with  per- 
haps the  exception  of  the  Standard  Oil,  surpassed  all  the 
trusts  whose  history  is  known  in  the  use  of  unfair  methods 
of  suppressing  competition.4  It  was  chiefly  due  to  such 
methods  that  the  company  early  obtained  a  monopoly  con- 
trol of  82  percent  of  the  cash  register  business,  and  later 
increased  it  to  95  percent.5  In  1893,  suit  was  brought 
against  the  officers  of  the  company.  The  Court  found  true 
the  charges  of  "intent  to  engross,  monopolize  and  grasp, 
and  of  means  clearly  unlawful  and  adapted  to  accomplish 
this  intent"  8  of  monopolizing  the  cash  register  trade,  but 
the  suit  was  allowed  to  lapse  because  the  complaining  witness 
entered  into  the  combination  of  the  defendants.7  The  fail- 
ure to  prosecute  had  a  bad  moral  effect  and  showed  the 
lack  of  zeal  on  the  part  of  the  prosecutors.  The  injury  to 
the  public  was  apparently  not  considered  of  much  importance 
at  that  time.  Nearly  two  decades  passed  before  another 
suit  was  heard  against  the  company  or  its  officers.  In  the 
meanwhile,  the  company  continued  its  unfair  practice  and 
controlled  as  high  as  95  percent  of  the  business  from  which 
it  derived  large  earnings. 

THE  SUGAR  TRUST  DECISION 

The  suit  against  the  E.  C.  Knight  Company,  the  "Sugar 
Trust,"  was  the  first  trust  case  decided  by  the  Supreme 
Court,  and  the  decision  was  of  great  future  importance. 
This  trust  had  been  more  conspicuous  than  any  other.  Its 
political  influences  had  long  been  known  and  the  excessive 
prices  for  such  a  commodity  as  sugar  were  particularly 
objectionable. 

Sugar  refining  naturally  lends  itself  to  monopoly,  but  in 
this  case  it  was  easier  to  bring  about  and  more  profitable 
because  of  protective  tariff  duties.8  During  a  period  of 

4  See  pp.  194-199. 
.'201  Fed.  Rep.  699. 
"55  Fed.  Rep.  641;  Fed.  Rep.  641. 
'The  Federal  Antitrust  Laws,  1916,  p.  46. 
"Taussig,  Tariff  History  of  the  United  States,  p.  310. 


34*  Trust  Dissolution 

keen  competition  in  the  late  '80's  many  refineries  went  out 
of  business.  Following  this  seventeen  of  the  twenty  remain- 
ing companies  entered  into  an  arrangement  whereby  the 
properties  and  management  of  the  companies  were  turned 
over  to  a  group  of  trustees  in  exchange  for  trust  certifi- 
cates which  represented  equities  in  the  combined  proper- 
ties. The  trustees  discontinued  twelve  of  the  corporations 
and  consolidated  the  remaining  eight  into  four.  The  capital 
stock  of  the  combination,  which  was  $50,000,000,  repre- 
sented property  worth  only  about  $6,590,000. 9 

This  trustee  device  was  declared  illegal  by  the  New  York 
State  Court  of  Appeals  in  1890,  and  the  charter  of  the  com- 
pany was  revoked.  The  American  Sugar  Refining  Company 
of  New  Jersey  then  became  the  organization  of  the  combining 
sugar  interests.  The  advance  in  sugar  prices  made  by  the 
trust  had  brought  many  new  competitors  into  the  field.  The 
combination  acquired  most  of  these,  often  paying  enormous 
sums.  By  1892  only  five  independent  refineries  remained. 
Four  of  these  were  in  Philadelphia,  the  largest  being  the 
E.  C.  Knight  Company.  The  four  companies  controlled  33 
percent  of  the  total  output  and  their  acquisition  in  that 
year  gave  the  combination  control  of  98  percent  of  the 
output.10  To  accomplish  this  purchase  the  capital  stock 
was  increased  to  $75,000,000. 

In  1894,  the  Government  brought  suit  against  the  E.  C. 
Knight  Company  and  others,  charging  that  the  purchase  of 
the  four  Philadelphia  refineries  was  made  for  the  purpose 
of  controlling  the  price  of  sugar,  and  it  asked  that  the 
purchase  be  declared  void.  The  Supreme  Court  declared 
that  the  defendants  had  created  a  monopoly  in  the  manu- 
facture of  sugar,  but  held  that  the  Sherman  law  did  not  give 
the  courts  power  to  "deal  with  monopoly  directly  as  such,  or 
to  limit  and  restrict  the  rights  of  corporations  created  by 
the  States  or  citizens  of  the  States  in  the  acquisition,  control 
or  disposition  of  property."  Such  power  could  only  be 
used  to  repress  monopoly  that  comes  within  the  rules  by 
which  commerce  is  governed  or  whenever  the  transaction 

•Century  Magazine,  V.  65,  p.  471. 

"60  Fed.  Rep.  307. 

n  156  U.  S.  16. 


Decisions  and  Dissolution  Decrees  35 

itself  is  a  monopoly  of  commerce.  It  was  held  that  the 
purchase  of  the  refineries  was  for  the  object  of  manufactur- 
ing sugar  and  bore  no  direct  relation  to  interstate  com- 
merce. An  attempt  or  even  a  successful  monopoly  of  manu- 
facture was  held  not  to  be  an  attempt  to  monopolize  com- 
merce even  though  the  instrumentality  of  commerce  was 
necessarily  employed  to  dispose  of  the  product.12 

Justice  Harlan  gave  a  dissenting  opinion  in  which  he 
held  that  interstate  commerce  did  not  consist  in  transpor- 
tation simply,  but  included  the  purchase  and  sale  of  articles 
intended  to  be  sold  among  the  states,  as  well  as  every  species 
of  commercial  intercourse.  He  declared  that  the  present 
case  came  fully  within  the  Sherman  law,  which  he  believed 
was  primarily  intended  to  free  commerce  from  a  combina- 
tion controlling  at  its  own  discretion  the  price  of  an  im- 
portant commodity.  If  the  sugar  company  did  not  come 
within  the  scope  of  the  act,  then  there  was  no  legal  prohibi- 
tion against  any  combination  from  obtaining  complete  con- 
trol of  important  commodities,  such  as  oil,  cotton,  flour, 
meat,  or  other  necessities.  This  dissenting  opinion  was  the 
one  later  adopted  by  the  courts. 

The  Knight  decision  destroyed  the  effectiveness  of  the 
Sherman  law  for  many  years.  The  sugar  trust,  which  had 
been  driven  from  New  York,  was  allowed  to  continue  its 
monopoly  under  the  laws  of  New  Jersey  unmolested.  Many 
other  monopolistic  combinations  sought  shelter  under  the 
laws  of  this  state.  Had  the  prosecution  been  prompt  and 
successful  the  trust  problem  might  never  have  grown  to 
such  large  proportions.  The  failure  of  the  suit  against  one 
of  the  chief  trusts  of  the  day  weakened  faith  in  the  effective- 
ness of  the  law  and  discouraged  further  efforts  to  enforce 
it.  The  world's  greatest  trust  movement  soon  took  place 
in  this  country  before  the  effect  of  this  decision  was  over- 
come. 

The  American  Sugar  Refining  Company  has  continued 

its  large  and  profitable  business  to  the  present  day.     Its 

percentage  of  the  enlarged  business,  however,  is  not  so  large 

as  in  1894.     A  suit  to  dissolve  the  company  is  now  pending 

"156  U.  S.  IT. 


36  Trust  Dissolution 

in  the  Circuit  Court,  twenty-three  years   after  the   above 
decision  was  given.13 

THE  ADDYSTON  PIPE  AND  STEEL  COMBINATION 

Following  the  defeat  in  the  sugar  trust  case  no  important 
suits  against  industrial  trusts  were  attempted  for  a  number 
of  years.  This  lull  was  due  to  several  influences  among 
which  may  be  mentioned  the  Knight  decision,  the  serious 
business  depression  from  1893-6,  and  the  lack  of  sympathy, 
and  even  hostility,  on  the  part  of  several  Attorney-Generals 
toward  enforcing  the  trust  laws.  The  opportunity  for 
bringing  suits  against  well  known  offenders  was  not  lacking. 
It  is  significant  that  the  first  important  application  of  the 
Sherman  law  was  upon  the  labor  unions,  organizations  per- 
haps the  least  of  all  intended  to  come  within  its  scope.  It 
was  rather  a  law  against  capitalists.  One  of  the  earliest 
labor  union  suits  under  the  law  was  against  Mr.  Debs  and 
others  who  were  directing  the  Pullman  Car  strike  in  1894. 14 
The  defendants  were  enj  oined  from  interfering  in  inter- 
state commerce  and  obstructing  the  mails  and  they  were 
promptly  punished  later  when  they  disobeyed  the  injunc- 
tion. 

The  second  important  application  of  the  law  affected  the 
railroads,  another  class  of  organizations  which  it  is  doubt- 
ful whether  the  framers  of  the  law  intended  to  include.  The 
Supreme  Court  decisions  in  the  Trans-Missouri  Freight  As- 
sociation case  15  in  1897  and  the  Joint  Traffic  Association 
case  16  in  1898  held  that  agreements  among  common  car- 
riers to  fix  rates,  even  though  the  rates  were  reasonable, 
were  restraints  of  trade  in  violation  of  the  Sherman  law. 
In  the  latter  year  two  suits  against  live  stock  associations — 
the  Kansas  City  Stock  Exchange  and  the  Traders  Live 
Stock  Association  of  the  same  city — were  decided  against 
the  Government  by  the  Supreme  Court.  The  defendants  of 

"See  p.  275. 

14 158  U.  S.  564. 

10  166  U.  S.  290. 

18 171  U.  S.  505. 


Decisions  and  Dissolution  Decrees  37 

the  former  were  held  not  to  be  engaged  in  interstate  com- 
merce,17 as  in  the  Knight  Case,  and  those  of  the  latter  were 
declared  not  to  be  interfering  even  though  their  business 
were  adjudged  to  be  interstate  commerce.18 

It  was  not  until  1899,  nearly  a  decade  after  the  passage 
of  the  Sherman  law,  that  the  second  industrial  trust  case  was 
decided  by  the  Supreme  Court.  This  was  a  suit  against  the 
Addyston  Pipe  and  Steel  Combination  which  was  the  first 
one  dissolved  under  the  law.19  The  combination,  formed  in 
1894,  included  six  companies  engaged  in  the  manufacture 
and  sale  of  cast  iron  pipe.  The  companies  entered  into  an 
agreement  to  raise  and  control  the  price  of  their  product 
in  territory  covering  more  than  three-fourths  of  the  coun- 
try. Exhibits  of  the  minutes  of  the  organization  showed  an 
extended  system  of  bonuses ;  the  division  of  the  country  into 
pay  territory,  free  territory,  and  reserved  cities;  allotments 
of  the  business ;  and  price  making  agreements.20  In  order 
to  carry  out  the  price  policy,  a  central  board  consisting  of 
representatives  of  the  companies  was  appointed  to  receive 
all  bids  and  to  let  all  contracts  so  that  the  company  securing 
the  order  should  be  protected  by  the  other  companies.  The 
products  were  largely  sold  by  contract  to  municipal  corpo- 
rations, gas  or  water  companies,  and  other  large  institutions 
which  usually  invite  bids  from  various  competitors.  After 
the  successful  bidder  had  been  determined  by  the  auction 
pool,  or  had  been  fixed  by  the  arrangement  as  to  reserve 
cities,  the  other  members  of  the  combination  put  in  bids  as 
high  as  the  selected  bidder  requested  in  order  to  give  the 
appearance  of  active  competition. 

A  suit  was  brought  in  1896  to  enjoin  the  operations  of 
the  combination.  The  case  was  dismissed  by  the  lower 
court  but  it  was  remanded  back  by  the  Circuit  Court  of 
Appeals  with  instructions  to  enter  a  decree  for  the  Govern- 
ment. In  1899  the  Supreme  Court  unanimously  held  the 
Addyston  combination  to  be  illegal  and  perpetually  enjoined 

17 171  U.  S.  579. 

18 171  U.  S.  604. 

19 175  U.  S.  211. 

30 175  U.  S.  214. 


38  Trust  Dissolution 

the  defendants  from  maintaining  it  and  from  doing  any  busi- 
ness under  the  arrangements.21  Seven  years  later,  the  Su- 
preme Court  permitted  the  city  of  Atlanta  to  recover  under 
the  Sherman  law  triple  the  excess  price  paid  on  products 
purchased  from  the  combination  which  resulted  from  the 
semblance  of  competition  set  up  by  it.22 

The  importance  of  the  Addyston  decision  was  the  broad- 
ening of  the  interpretation  of  the  Sherman  act,  which  had 
been  limited  in  the  Knight  decision,  in  holding  it  to  apply 
to  a  combination  whose  business  was  primarily  manufactur- 
ing or  other  activity  even  though  it  might  be  subject  to 
state  rather  than  federal  legislation.  It  was  the  first  im- 
portant dissolution  of  industrial  monopoly  under  the  act, 
and  may  have  been  a  factor  in  checking  the  great  trust  move- 
ment which  was  at  its  height.  It  strongly  discouraged  com- 
bination in  the  form  of  a  pool. 

THE  NATIONAL  HARROW  COMPANY 

Due  to  the  extremely  lax  enforcement  of  the  antitrust 
laws  during  the  McKinley  administration  there  was  an  in- 
terval of  nearly  five  years  following  the  Addyston  decision 
before  another  real  trust  case  was  brought  before  the  Su- 
preme Court.  During  this  time  few  suits  of  any  kind  were 
filed  under  the  law.  One  of  the  more  important  was  a  suit 
brought  by  the  National  Harrow  Company  against  Mr. 
Bemmet.  The  decision  in  this  case  shows  the  exclusive  char- 
acter of  our  patent  rights.  The  company  owned  patents 
covering  the  manufacture  of  spring-tooth  harrows  and  sold 
to  others  a  license  right  to  manufacture  the  harrows. 
Under  the  binding  terms  of  its  agreements,  the  particular 
kinds  of  the  harrows  which  could  be  made  by  the  licensee,  the 
price  and  terms  of  sale  for  each,  and  the  territory  where 
each  could  sell  were  stipulated.  In  1897  the  company 
brought  suit  against  several  licensees  who  did  not  abide  by 
all  the  provisions  of  the  agreement,  claiming  that  the  con- 

21 175  U.  S.  211. 
*  203  U.  S.  390. 


Decisions  and  Dissolution  Decrees  59 

tracts  were  illegal.     The  lower  courts  held  that  the  con- 
tracts were  illegal,  and  no  appeal  was  made.23 

In  1902  the  National  Harrow  Company  carried  a  test 
case  before  the  Supreme  Court.  This  was  a  suit  against 
Mr.  Bemmet,  a  licensee,  who  refused  to  keep  his  contract 
requirements  with  the  company  on  the  ground  that  it  was 
illegal  under  the  Sherman  law.  The  Supreme  Court  held 
that  the  company  was,  at  the  time  the  license  was  executed, 
the  absolute  owner  of  the  patents  relating  to  the  spring-tooth 
harrow  business,  and  was  "therefore  the  owner  of  a  monopoly 
recognized  by  the  Constitution  and  the  Statutes  of  Con- 
gress *  The  general  rule  is  absolute  freedom  in  the 
use  or  sale  of  rights  under  the  patent  laws  of  the  United 
States.  The  very  object  of  these  laws  is  monopoly  * 
(and)  the  fact  that  the  conditions  in  the  contracts  keep  up 
monopoly  or  fix  prices  does  not  render  them  illegal."  24  It 
found  "no  purpose  to  stifle  competition  in  the  harrow  busi- 
ness than  the  patents  provided  for."  25  The  clause  pro- 
hibiting the  licensee  from  making  other  harrows  than  those 
stipulated  in  the  contract  was  held  to  be  legal. 

While  the  exclusive  character  of  patents  was  well  known, 
this  decision  strengthened  the  tendency  to  secure  monopo- 
listic control  on  the  basis  of  patent  right.  It  will  be  pointed 
out  later  how  the  control  of  several  important  industries 
was  secured  and  maintained  largely  by  the  use  of  restrictive 
and  exclusive  contracts  in  connection  with  the  manufacture, 
sale,  and  use  of  patented  machines,  processes  and  products. 

THE  NORTHERN  SECURITIES  COMPANY 

The  first  decision,  following  the  Addyston,  which  helped 
to  broaden  the  construction  and  application  of  the  Sher- 
man law  respecting  industrial  monopoly  was  in  the  Northern 
Securities  case.26  This  decision,  rendered  in  1904,  had  an 

23  83  Fed.  Rep.  36. 
24 186  U.  S.  91-2. 
K  186  U.  S.  92. 
26 193  U.  S.  197. 


40  Trust  Dissolution 

important  bearing  upon   the  future   form  of  monopolistic 
combinations. 

The  question  as  to  whether  the  Sherman  law  applied  to 
railroads  had  been  decided  by  two  earlier  decisions.  In  the 
Trans-Missouri  Freight  Association  decision  in  1897,  an 
agreement  made  between  the  Atchison  and  seventeen  other 
railroads,  whereby  the  rates  were  to  be  determined,  was 
declared  invalid  under  the  law  on  the  ground  that  the  dis- 
tricts served  by  the  railroads  were  deprived  of  the  benefits 
of  competition.27  In  the  following  year  the  Joint  Traffic 
Association,  composed  of  thirty-two  railroads  operating 
between  Chicago  and  the  Atlantic  Coast,  was  declared  il- 
legal.28 The  latter  association  was  formed  for  the  purpose 
of  maintaining,  jointly,  through  the  medium. of  a  managing 
board  the  freight  and  traffic  rates  already  in  force.  It  was 
declared  illegal  upon  the  same  ground  as  in  the  preceding 
case. 

The  principal  facts  concerning  the  Northern  Securities 
Company  can  be  briefly  stated.29  In  1901,  under  the  lead- 
ership of  J.  J.  Hill  and  J.  P.  Morgan,  the  stockholders  of 
the  Great  Northern  and  Northern  Pacific  railroad  cor- 
porations, having  competing  and  substantially  parallel  lines 
from  the  Great  Lakes  and  the  Mississippi  River  to  the  Pacific 
Ocean  at  Puget  Sound,  formed  the  project  of  combining 
the  two  companies.  The  primary  need  for  both  companies 
was  an  independent  entrance  into  Chicago;  and  it  was  evi- 
dent that  a  single  road  entrance  would  amply  suffice  for  the 
two.  The  Burlington  system,  which  had  the  necessary  Chi- 
cago connection,  and  also  gridironed  a  rich  and  populous 
territory  of  its  own,  was  acquired  for  this  purpose  in  1901. 
By  the  terms  of  purchase  the  Northern  Pacific  and  Great 
Northern  were  each  to  receive  one-half  of  the  $108,000,000 
of  Burlington  stock;  and  were  to  pay  for  it  in  joint  long- 
time collateral  trust  bonds.  About  97  percent  of  the  Bur- 
lington stock  was  secured  and  deposited  in  trust  as  security 
for  the  new  bonds. 

27  66  U.  S.  290. 

28 171  U.  S.  505. 

29 193  U.  S.  320  et  seq. ;  Ripley,  Railroad  Finance  and  Reorganization, 
pp.  491-9. 


Decisions  and  Dissolution  Decrees  41 

The  foregoing  transaction  was  bitterly  opposed  by  the 
Harriman-Union  Pacific  interests,  who  also  sought  the 
Burlington  system,  which  would  give  the  Union  Pacific, 
terminating  at  the  Missouri  River,  connection  with  Chicago. 
The  Harriman  forces  then  attempted  to  secure  control  of  the 
Northern  Pacific  by  bidding  for  the  stock  in  the  open  market, 
and  through  the  latter  secure  a  half  interest  in  the  Burling- 
ton. A  stock  market  panic  resulted  on  May  9,  1901,  and 
Northern  Pacific  stock  sold  as  high  as  $1,000  a  share.  The 
Harriman  interests  succeeded  in  obtaining  a  majority  of 
the  total  amount  of  stock,  but  their  majority  consisted 
largely  of  preferred  shares  which  could  be  retired  on 
any  1st  of  January  prior  to  1917,  that  is  before  the 
Harriman  interests  could  get  an  opportunity  to  vote  the 
shares  and  insure  the  coveted  control.  The  potential  power 
of  retiring  the  preferred  shares  generated  a  conciliatory  atti- 
tude on  the  part  of  the  Harriman  forces.  The  Hill-Morgan 
interests  were  allowed  to  recover  by  purchase  a  majority  of 
the  Northern  Pacific  stock.  In  order  to  prevent  the  recur- 
rence of  such  a  situation,  a  holding  company  was  planned 
which  should  hold  the  stocks  of  the  two  roads.  The  North- 
ern Securities  Company  was  organized  for  this  purpose, 
with  a  capital  stock  of  $400,000,000,  and  upon  an  agreed 
basis  of  value  the  shareholders  of  the  two  railroad  com- 
panies exchanged  their  stock  for  the  stock  of  the  holding 
company.30  In  this  way,  the  Securities  company  became 
the  custodian  of  more  than  nine-tenths  of  the  Northern  Pa- 
cific stock  and  more  than  three-fourths  of  the  Great  North- 
ern. The  two  roads  were  conducted  as  one  system  for  the 
exclusive  benefit  of  the  stockholders  of  the  Securities  com- 
pany. Competition  practically  ceased,  and  the  earnings 
of  the  two  roads  were  put  into  a  common  fund  to  be  dis- 
tributed to  the  shareholders  of  the  Securities  company. 

In  1902,  the  Government  brought  suit  under  the  Sherman 
law  to  dissolve  the  company.  The  Circuit  Court  in  1903 
ordered  the  company  to  be  dissolved,  and  in  the  following 
year  the  decree  was  affirmed  by  the  Supreme  Court.31  The 


80 193  U.  S.  327-8. 
n  193  U.  S.  327. 


42  Trust  Dissolution 

latter  declared  that  no  scheme  or  device  could  more  certainly 
come  within  the  prohibition  of  the  law,  or  could  more  ef- 
fectively suppress  competition.  It  held  that  the  entire  com- 
merce of  the  immense  territory  served  by  the  two  roads 
was  at  the  mercy  of  a  single  holding  company,  organized  in 
a  distant  state.  It  enjoined  the  company  from  exercising 
any  further  control  over  its  stock,  but  permitted  the  com- 
pany either  to  transfer  the  stocks  of  the  two  railroads  held 
in  its  treasury  to  their  former  owners,  or  to  distribute  them 
to  the  present  stockholders  of  the  Securities  Company.  The 
Morgan-Hill  parties  chose  the  latter  plan  and  proceeded  to 
make  a  pro  rata  distribution,  but  the  Harriman  interests 
objected  to  this  plan,  which  gave  a  majority  of  the  North- 
ern Pacific  stock  to  Hill  and  his  friends,  and  demanded  that 
the  original  stocks  of  the  railroads  be  returned  to  their  for- 
mer owners.  The  contest  was  carried  to  the  Supreme  Court 
which  decided  in  favor  of  Hill  and  his  friends.  Had  Harri- 
man won  he  would  have  recovered  his  former  control  over 
the  Northern  Pacific.32  The  dissolution  left  the  Northern  Pa- 
cific in  the  hands  of  its  transcontinental  rival,  of  Hill  and 
his  friends  who  held  a  majority  of  the  Securities  company's 
stock  and  received  a  like  majority  of  the  stocks  of  the  two 
railroads.33  The  Harriman  forces  received  minority  hold- 
ings in  each  of  the  two  roads. 

Alexander  D.  Noyes  cites  the  following  results  of  the 
dissolution:  "Predictions  of  great  financial  demoralization 
were  common  when  the  Northern  Securities  had  been  finally 
ordered  to  dissolve;  yet  the  dissolving  of  that  holding  com- 
pany was  accomplished  with  a  minimum  of  friction  or  dis- 
turbance, and  along  with  a  great  advance  in  the  stock  ex- 
change prices.  The  business  of  the  constituent  companies 
went  on  as  usual.  Not  only  so,  but  the  Union  Pacific  Treas- 
ury, which  retained  its  holdings  during  the  litigation  and 
through  the  dismemberment  of  the  holding  company,  *  *  * 
sold  the  bulk  of  its  investment  two  or  three  years  later  at  a 
profit  of  $34,000,000."  34  The  total  profits  for  the  Harri- 

82 197  U.  S.  258-9. 

M  Ibid.,  p.  244. 

84  The  Forum,  V.  43,  p.  43. 


Decisions  and  Dissolution  Decrees  43 

man  interests  resulting  from  this  extraordinary  venture  were 
approximately  $82,943,000.35 

William  Z.  Ripley,  writing  in  1915,  says  that  "Since  the 
legal  dissolution  of  the  Northern  transcontinental  monopoly 
in  1905,  no  outward  change,  so  far  as  the  public  is  concerned, 
is  apparent.  Harmony  in  rate  policy  has  been  unbroken ; 
and  in  all  subsequent  changes  in  rates,  all  roads  have  prac- 
tically acted  as  a  unit.  This  is  undoubtedly  because  substan- 
tial blocks  of  the  stock  of  both  main  lines  are  still  lodged 
in  the  same  hands.  At  all  events,  everything,  except  com- 
petition in  facilities  had  ceased,  and  both  roads  continued  in 
control  of  one-half  each  of  the  Burlington  system.  Nor  has 
the  latter  ceased  to  expand  in  the  interests  of  its  joint  own- 
ers." 36  In  1908,  the  Colorado  and  Southern  was  purchased 
through  the  Burlington  company.  This  purchase  gave  the 
Great  Northern  and  Northern  Pacific  an  outlet  upon  the. 
Gulf  of  Mexico,  and  by  adding  2,500  miles  increased  the 
total  mileage  of  the  affiliated  systems  to  25,000. 

In  this  dissolution  the  legal  requirements  were  apparently 
considered  of  more  importance  than  a  proper  distribution 
of  the  equities.  The  dissolution  left  the  control  of  the  two 
great  railway  systems  in  the  hands  of  a  few  persons  who 
constituted  a  "controlling  community  of  interests."  It  did 
not  restore  competition.  Its  chief  significance  was  the  firm 
declaration  that  not  even  a  state,  still  less  one  of  its  arti- 
ficial creatures,  can  stand  in  the  way  of  enforcing  the  fed- 
eral antitrust  laws.  It  put  an  end  to  the  holding  company 
as  a  legal  instrumentality  for  the  attainment  of  monopoly, 
and  monopolistic  combinations  seldom  took  this  form.  Many 
sought  refuge  in  the  consolidated  corporation  or  in  some 
system  of  co-operation.  The  chief  purpose  in  the  latter 
was  to  secure  a  harmony  of  policy  among  competitors  re- 
garding volume  of  output  and  prices  through  tacit  under- 
standings and  the  exchange  of  information.  These  arrange- 
ments were  generally  known  as  a  "gentlemen's  agreement." 

"Ripley.     Railroads,   Finance   and   Reorganization,  p.   506. 
"Ibid.,  p.  499. 


44  Trust  Dissolution 

THE  MILES  MEDICAL  COMPANY 

The  Miles  Medical  Company  decision,  rendered  in  1911, 
limited  the  scope  of  power  conferred  by  patent  rights.  This 
company,  which  manufactured  patent  medicines,  sought  to 
control  directly  the  entire  trade  in  the  medicines  it  made. 
To  accomplish  this  the  company  employed  two  forms  of  re- 
strictive contracts.37  One  form  was  signed  by  over  400 
jobbers  and  wholesale  dealers  and  the  other  form  by  more 
than  25,000  retail  dealers.  In  either  form  the  jobbers  or 
dealers  agreed  not  to  resell  below  the  prices  fixed  by  the 
company.  Only  those  who  signed  the  contracts  could  obtain 
the  medicines.  In  this  way,  the  company  fixed  the  price  of 
its  products  for  the  jobber,  the  retail  dealers  and  the  con- 
sumer. 

Suit  was  brought  by  the  company  against  Park  and 
Son's  Company,  jobbers,  who  had  not  signed  the  binding 
contracts  and  were  selling  the  company's  medicines  to  retail 
dealers  at  cut  prices.  The  retail  dealers  were  at  liberty  to 
sell  to  consumers  at  their  own  price.  Park  and  Son's  pro- 
cured the  medicines  at  cut  prices  from  other  wholesale  deal- 
ers who  violated  their  contracts  with  the  Medical  company. 
The  company  complained  that  the  sales  at  reduced  prices 
injured  the  business  of  the  other  retail  dealers  selling  their 
medicines,  and  also  that  it  damaged  the  company's  reputa- 
tion. 

The  Supreme  Court  held  that  the  wholesale  dealers  and 
jobbers  were  the  owners  of  the  medicines  purchased  from 
the  company  and  that  the  restrictive  contracts,  which  elimi- 
nated competition  among  most  of  the  wholesale  dealers  and 
jobbers,  as  well  as  among  a  majority  of  the  retail  druggists 
of  the  country,  were  illegal  under  the  Sherman  law.38  It 
declared  that  the  holder  of  a  patent  did  not  acquire  thereby 
the  power  to  fix  future  retail  prices  of  the  product. 

THE  MEAT  PACKERS'  COMBINATION 

The  fourth  important  decision  which  helped  to  establish 
the  scope  and  meaning  of  the  antitrust  law  respecting  indus- 
"220  U.  S.  374-394. 
"220  U.  S.  399-400. 


Decisions  and  Dissolution  Decrees  45 

trial  monopoly  was  in  the  Beef  Trust  or  Meat  Packers'  case. 
The  packers'  combination  affected  all  classes  of  people  and 
all  sections  of  the  country. 

The  center  of  the  live  stock  industry  had  passed  the  Mis- 
souri River  in  its  westward  movement  by  1890.  Ten  years 
later  two-thirds  of  the  cattle,  including  most  of  those  raised 
for  beef,  were  produced  west  of  this  river.  The  shifting  of 
the  industry  was  determined  largely  by  the  grazing  and 
grain  districts  of  the  West.  The  slaughtering  and  packing 
industry  tended  to  follow  the  movement  of  the  live  stock  in- 
dustry. The  shifting  of  the  former  depended  largely  upon 
improvements  in  the  methods  of  preserving  and  transporting 
meat.  With  the  invention  of  the  refrigerator  car  in  1868, 
the  packing  industry  rose  rapidly  in  the  West. 

The  economies  and  advantages  of  marketing  live  stock 
at  a  few  centers,  and  of  slaughtering  and  packing  in  rela- 
tively large  establishments  resulted  in  concentrating  the 
slaughtering  industry  of  the  West  in  a  relatively  few  large 
|  packing  centers.  About  60  percent  of  the  total  value  of  the 
;  output  from  slaughtering  and  packing  establishments  in 
1 1903  was  slaughtered  at  Chicago,  Kansas  City,  South  Oma- 
jha,  St.  Louis,  and  St.  Joseph.  In  this  year  3,000,000  head 
were  slaughtered  at  Chicago.  This  was  four  times  as  many 
as  at  any  other  center. 

For  some  years  prior  to  1904  the  bulk  of  the  slaughtering 
and  packing  was  done  by  six  companies.  The  names  and 
capital  stock  of  these  companies  in  that  year  were  as  fol- 
lows:39 

Name  '•  Capital  Stock 

Swift  and  Company $35,000,000 

Armour  and  Company 20,000,000 

National  Packing  Company 15,000,000 

Nelson,  Morris  and  Company 6,000,000 

Schwartzschild  and  Sulzberger  Co 5,000,000 

Cudahy  Packing  Company 7,000,000 

The  first  four  companies  named  were  known  as  the  "Big 
Four,"  while  the  six  were  often  called  the  "Big  Six."  Each 
**  Report  of  the  Commissioner  of  Corporations  on  the  Beef  Industry, 
1905,  p.  10.  Hereafter  this  source  will  be  referred  to  as  the  Report  of 
Bureau. 


46  Trust  Dissolution 

of  the  companies  controlled  from  three  to  twenty-four  sub- 
sidiary companies.40  None  of  the  companies  were  over  cap- 
italized. The  stock  of  each,  except  in  the  case  of  the  Swift 
company  whose  stocks  were  listed  on  the  stock  exchange, 
were  largely  held  by  a  few  individuals,  and  exchanges  of 
stock  were  infrequent.  With  the  exception  of  the  National 
Packing  Company,  the  stock  of  the  different  companies  were 
held  by  separate  groups  of  shareholders.  The  National  had 
been  organized  in  1902  by  the  other  three  members  of  the 
"Big  Four"  group,  the  Swift,  Armour,  and  Morris  inter- 
ests, who  held  all  of  its  capital  stock.  The  company  was 
used  to  acquire  control  of  the  principal  packing  plants  at 
St.  Louis,  Omaha,  Kansas  City,  and  certain  other  cities.  It 
also  acquired  or  established  a  large  number  of  branch 
houses,  selling  agencies,  and  stock  yard  interests.  The  joint 
ownership  in  this  company  firmly  established  the  community 
of  interest  among  the  "Big  Four"  companies.  Publicity  con- 
cerning the  affairs  of  the  companies  was  almost  negligible. 

The  dominant  position  of  the  companies  in  the  beef  in- 
dustry is  shown  by  the  proportion  of  the  business  done  by 
them.  The  six  companies  killed  5,503,714  head  or  about  90 
percent  of  the  cattle  inspected  for  slaughter  in  all  the  cities 
east  of  the  Rocky  Mountains  in  1903.41  Of  this  number 
5,206,983  head  were  killed  at  eight  of  the  leading  western 
markets  where  the  six  companies  did  97.7  percent  of  the  busi- 
ness. The  high  percentage  is  significant  in  view  of  the  fact 
that  over  three-fourths  of  the  beef  cattle  are  in  the  district 
lying  west  of  Chicago  and  east  of  the  Rocky  Mountains. 
The  rest  of  the  country  depend  largely  upon  the  surplus  of 
this  region  for  its  beef  supply.  Of  the  cattle  slaughtered  at 
the  eight  leading  western  markets  in  1903,  the  six  com- 
panies had  100  percent  of  the  business  at  Omaha,  Fort 
Worth,  and  Sioux  City;  99.6  percent  at  Kansas  City;  99.1 
percent  at  St.  Joseph;  97.5  percent  at  St.  Paul;  96.5  per- 
cent at  St.  Louis ;  and  95.8  percent  at  .Chicago.42 

The  proportion  of  the  total  supply  of  beef  sold  by  the 
six  companies  was  large,  but  it  varied  much  between  dif- 

40  Report  of  Bureau,  pp.  28-30. 

41  Ibid.,  p.  58. 
"Ibid. 


Decisions  and  Dissolution  Decrees  47 


ferent  sections  of  the  country  and  also  between  towns  of 
different  sizes.  In  some  sections  their  control  was  almost 
complete.  They  sold  from  70  to  75  percent  of  the  fresh 
beef  consumed  in  New  York  and  vicinity,  60  to  75  percent 
in  Pittsburg,  and  45  percent  in  Philadelphia.43  The  smaller 
towns  depend  less  upon  the  large  packers  than  the  larger 
cities.  From  computations  based  upon  a  large  number 
of  towns  the  Bureau  estimated  that  the  six  companies  fur- 
nished the  following  proportion  of  the  beef  supply:  towns 
having  a  population  of  2,000  to  5,000,  30  percent ;  5,000  to 
10,000,  40  percent;  10,000  to  50,000,  155  percent;  50,000 
and  over,  60  percent.44  The  six  packing  companies  sold 
75  to  85  percent  of  the  fresh  beef  consumed  in  New  England ; 
50  to  75  percent  in  New  York,  New  Jersey  and  Pennsylvania ; 
£0  to  25  percent  in  the  Southern,  Central,  and  Western 
States;  and  15  to  20  percent  in  the  Mountain  and  Pacific 
States.45 

These  figures  indicate  the  nature  of  competition  en- 
countered by  the  packers.  The  large  packers  have  no  com- 
petitors who  ship  beef  extensively  and  only  a  few  who  ship 
any  at  all.  The  more  important  competitors  are  the  large 
local  slaughtering  establishments  in  the  larger  cities.  The 
ability  of  the  latter  to  compete  with  the  packers  depends 
upon  (1)  a  local  supply  of  beef  cattle  which  saves  freight 
charges;  (2)  efficient  plants  to  utilize  by-products;  (3) 
upon  the  preference  of  consumers  for  locally  killed  beef. 
Other  competitors  consist  of  local  butchers  in  the  smaller 
towns.  Since  the  big  packers  had  no  particular  advantage 
in  patents  and  no  direct  control  of  raw  materials,  and  since 
the  capital  requirement  for  setting  up  local  slaughter  houses 
was  not  large,  local  competition  tended  to  spring  up  when- 
ever the  margin  of  profit  permitted. 

One  advantage  secured  by  the  large  packers  resulted  from 
owning  their  own  spur  lines  and  shipping  cars.  The  six  com- 
panies owned  about  25,000  cars  in  1904.46  These  included 
refrigerator,  fruit,  packing,  stock,  tank,  and  a  few  box  cars. 

43  Report  of  Bureau,  p.  67. 

44  Ibid.,  p.  73. 
46  Ibid.,  p.  74. 
48  Ibid.,  p.  270. 


48  Trust  Dissolution 

In  owning  their  own  cars  the  packers  were  less  dependent 
upon  the  railroads  and  were  provided  with  adequate  trans- 
portation facilities  at  all  times.  It  also  enabled  them  to 
secure  excessive  mileage  payments  from  the  railroads  for  the 
use  of  spur  lines  and  cars  and  this  in  effect  was  to  secure 
rebates.  Some  of  the  packers  also  had  their  own  ice-packing 
stations  to  repack  their  cars  while  in  transit. 

While  the  report  of  the  Bureau  does  not  give  the  propor- 
tion of  hogs  and  sheep  slaughtered  by  the  six  companies,  it 
shows  that  the  bulk  of  the  business  in  these  branches  of  the 
industry  is  also  concentrated  in  the  chief  western  beef  pack- 
ing centers.  The  six  companies  which  dominate  these  centers 
so  completely  appear  to  control  the  packing  of  hog  and 
sheep  products  in  a  similar  way.47  They  slaughtered  about 
14,000,000  hogs  and  6,000,000  sheep  in  1903. 

The  figures  of  the  Bureau  show  that  the  margin  be- 
tween cattle  prices  and  beef  prices  was  $2.02  per  hundred- 
weight from  July  1,  1902  to  July  1,  1903,  and  for  the  suc- 
ceeding year  when  cattle  prices  were  much  lower  the  margin 
was  $2.10.48  The  packers  received  less  for  the  carcass  than 
they  paid  for  the  live  animal,  depending  upon  the  hides  and 
other  by-products  to  make  up  the  difference  and  to  leave 
a  profit.  The  beef  itself  made  up  only  about  three-fourths 
of  the  selling  value,  by-products  making  up  the  other  fourth. 
Of  this  fourth,  hides  made  up  about  half  of  the  value.  The 
value  of  by-products  ranged  from  $9.50  to  $12.00  per  head 
during  the  years  1902  to  1904. 

The  profit  derived  from  the  beef  industry  by  the  packers 
was  computed  to  be  about  $1.00  per  head.49  However  the 
Bureau  believed  that  there  might  be  an  additional  profit 
per  head  not  to  exceed  fifty  cents  derived  from  subsidiary 
manufacturing  processes  and  the  use  of  private  car  lines 
and  cars.50  This  may  seem  small  but  as  the  number  of  beef 
cattle  slaughtered  was  about  7,000,000  annually  the  aggre- 
gate was  considerable.  There  was  also  the  profit  derived 
from  the  slaughter  of  about  20,000,000  head  of  hogs  and 

*7  Report  of  Bureau,  p.  11. 

48  Ibid.,  p.  268. 

"Ibid. 

80  Ibid.,  p.  34. 


Decisions  and  Dissolution  Decrees  49 

sheep,  and  from  handling  of  other  products  such  as  fruits 
and  eggs.  If  rebates  were  received,  as  alleged  by  the  Govern- 
ment, the  profit  would  be  further  increased.  The  packers  se- 
cured from  14  to  17  percent  upon  the  investment  in  their  car 
line  business.51  For  some  companies  the  rate  ranged  from  17 
to  £3  percent.  These  excessive  profits  came  wholly  from  pay- 
ments allowed  by  common  carriers,  and  were  in  effect  rebates. 
They  gave  an  enormous  advantage  over  would-be  competitors. 

The  packers  who  dominated  the  industry  used  various 
means  to  restrict  meat  prices  throughout  the  country.52 
They  united  in  requiring  their  purchasing  agents  to  refrain 
from  bidding  against  each  other,  except  perfunctorily  and 
without  good  faith.  This  compelled  owners  of  stock  to  sell 
under  non-competitive  conditions.  In  a  similar  way  they 
had  their  agents  to  bid  up  the  prices  for  a  few  days  at  a  time 
to  induce  large  shipments  of  stock  and  then  reduced  the 
price.  The  packers  also  combined  to  fix  and  maintain  uni- 
form prices  at  which  they  sold  their  products  to  dealers. 
The  price  agreements,  which  were  effected  at  secret  meet- 
ings, were  enforced  by  imposing  penalties  for  violations,  by 
establishing  a  uniform  rule  of  credit  to  dealers,  by  keeping 
a  black  list  of  delinquent  dealers,  by  refusing  to  sell  meats 
to  dealers  who  departed  from  the  set  prices,  and  by  restrict- 
ing shipments  of  meat.  The  packers  also  established  uniform 
cartage  charges  for  the  delivery  of  meat  sold  to  consumers 
where  no  charge  could  be  maintained  except  by  united  action. 
They  were  also  aided  in  monopolizing  the  trade  through 
rebates  and  concessions  from  the  railroads. 

Viewed  as  a  whole,  the  monopolistic  control  of  the  com- 
bining packers  was  not  very  permanently  secured.  It  did 
not  have  direct  control  of  the  raw  materials  nor  have  control 
of  essential  patents.  The  control  was  largely  dependent, 
first  upon  the  co-operation  of  separately  owned  companies 
to  depress  live  stock  prices  and  to  maintain  sale  prices  of 
fresh  meat  products,  and,  second  upon  outside  aids,  chief 
among  which  were  tariff  duties,  railroad  concessions  and  re- 
bates received  through  excessive  allowance  for  private  cars, 

"Report  of  Bureau,  pp.  283-5. 
62 196  U.  S.  391-3. 


50  Trust  Dissolution 

stockyards,  and  spur  lines.  The  economies  of  large  scale 
production  could  not  be  materially  increased  through  com- 
bination among  the  large  packers.  Also,  local  competition 
was  present  in  various  degrees  in  the  stock-growing  regions 
and  this  could  be  extended  somewhat  whenever  the  margins 
of  profit  became  great  enough.  However,  the  monopolistic 
control  of  the  packers  in  so  great  a  necessity  of  life  was  so 
effectively  maintained  and  used  as  to  concern  greatly  both 
the  consumers  and  live  stock  growers. 


In  1902,  the  Government  filed  a  petition  under  the  Sher- 
man law,  alleging  that  seven  corporations,  including  the 
"Big  Six"  companies  and  one  other,  and  twenty-three  indi- 
viduals had  entered  into  a  combination  and  conspired  to  sup- 
press competition  in  the  purchase  of  live  stock  and  in  the 
sale  of  beef,  and  to  monopolize  the  fresh  meat  trade,  by  the 
various  means  described  above.  The  defendants  did  not 
contest  the  charges  and  in  1903  the  Circuit  Court  entered 
an  injunction  prohibiting  all  the  acts  charged  by  the  Gov- 
ernment.53 The  Supreme  Court  sustained  the  decree  of  the 
lower  court  by  a  unanimous  vote  early  in  1905. 54  Such 
combination  as  had  existed  among  the  packers  was  perpet- 
ually enjoined.  There  appeared  to  be  no  doubt  on  the  part 
of  the  courts  that  the  Sherman  law  applied  to  such  a  com- 
bination and  practices. 

One  of  the  chief  weaknesses  of  the  decree  was  the  failure 
to  dissolve  the  National  Packing  Company.  It  was  the 
joint  ownership  of  the  extensive  assets  of  this  company, 
which  were  strategically  located  throughout  the  country,  by 
the  other  members  of  the  "Big  Four"  group  that  gave  the 
combination  much  of  its  stability.  In  view  of  the  relations 
existing  among  the  largest  packing  companies,  and  of  the 
proportion  of  the  business  controlled  by  them,  a  restraining 
injunction  could  hardly  be  expected  to  restore  competitive 
conditions. 

Unfortunately  this  was  not  the  end  of  combination  among 
the  packers.  In  March,  1905,  the  Government  secured  an 

"122  Fed.  Rep.  529. 
M 196  U.  S.  375. 


Decisions  and  Dissolution  Decrees  51 

indictment  against  those  who  were  the  chief  defendants  in 
the  preceding  suit,  charging  that  they  were  continuing  to 
conduct  their  business  in  ways  enjoined  by  the  decree.  The 
defendants  now  claimed  immunity  from  criminal  prosecution 
on  the  ground  that  they  had  been  compelled  to  incriminate 
themselves  through  information  given  at  the  request  of  the 
Bureau  of  Corporations.  After  a  year  of  litigation  the 
court  gave  a  decision  in  favor  of  the  claim  of  immunity  as  to 
the  natural  persons  but  not  as  to  the  corporations.55  No 
appeal  could  be  taken  from  this  decision,  and  as  a  result 
the  individual  packers  were  completely  freed  from  prosecu- 
tion. Thus  the  prosecution  under  the  Sherman  law  failed 
on  a  point  of  law  after  an  injunction  decree  had  been  ob- 
tained. The  decision  in  favor  of  immunity  gave  rise  to  the 
phrase  "immunity  bath"  and  it  aroused  strong  public  pro- 
test. This  easy  way  of  avoiding  prosecution  was  promptly 
removed  by  an  act  of  Congress  which  limited  immunity  to 
natural  persons  giving  testimony  or  evidence  under  oath  in 
obedience  to  a  subprena.  The  public  dissatisfaction  at  this 
time  was  further  increased  by  Upton  Sinclair's  sensational 
novel,  "The  Jungle,"  and  by  several  federal  investigations, 
each  describing  the  unsatisfactory  sanitary  conditions  in  the 
packing  industry.  These  disclosures  led  to  an  act  of  Con- 
gress in  1906  which  provided  for  rigid  regulation  and  inspec- 
tion of  meat  slaughtering  and  packing. 

The  legal  war  against  the  packers  was  destined  to  con- 
tinue for  many  years.  Many  investigations  of  the  alleged 
beef  trust  were  made.  Near  the  close  of  1906  a  federal  grand 
jury  began  an  investigation  which  was  soon  discontinued. 
Three  years  later  the  investigation  was  resumed,  and  in  1910 
an  indictment  was  returned  against  the  National  Packing 
Company  and  ten  subsidiary  concerns,  charging  a  combina- 
tion to  restrain  trade  in  fresh  meats.  At  the  same  time  a 
dissolution  suit  was  filed  against  the  same  defendants  on  the 
same  charges.56  The  latter  was  soon  dismissed  in  order  to 
facilitate  the  prosecution  of  the  former  which  was  later 
quashed.  A  special  grand  jury  was  called  to  renew  the  in- 

"142  Fed.  Rep.  976. 

"The  Federal  Antitrust  Laws,  1916,  p.  62. 


52  Trmt  Dissolution 

vestigation,  and  this  resulted  in  the  return  of  an  indictment 
against  ten  of  the  chief  packers,  including  the  leaders  of  the 
"Big  Four."57 

In  the  meanwhile  the  packing  industry  had  grown  rapidly 
from  1905  to  1912.  Since  the  business  of  the  Big  Four 
companies  increased  almost  proportionally,  the  Swift  com- 
pany may  be  used  to  illustrate.  The  capital  stock  of  the 
Swift  company  increased  from  $35,000,000  to  $75,000,000 
in  seven  years,  and  its  sales  from  $200,000,000  to  $300,- 
000,000.58  The  regular  cash  dividends  of  7  percent  amounted 
to  $28,962,500  for  the  period  while  the  total  earnings  were 
$52,777,655,  or  nearly  double  this  amount.  The  annual  fluc- 
tuations in  the  earnings  were  not  large,  tending  to  show  the 
absence  of  strong  competition.  The  company  had  7,731  cars 
in  service  in  1912  which  were  used  in  transporting  its  prod- 
ucts. 

The  trial  of  the  ten  packers,  including  J.  O.  Armour, 
L.  F.  Swift,  E.  Morris,  and  E.  Tilden,  was  concluded  early 
in  1912.  In  addition  to  the  general  charges  of  violating  the 
Sherman  law,  the  packers  were  charged  with  refraining  from 
bidding  against  each  other  for  live  stock,  with  fixing  prices 
of  meat  in  the  branch  markets,  and  with  conspiring  through 
the  National  Packing  Company  to  arrange  prices,  to  ex- 
change information,  and  to  distribute  the  buying  orders  for 
each  week's  business.59  After  a  trial  lasting  over  three 
months  the  packers  w$re  acquitted.  This  verdict  was  sharp- 
ly criticized  by  the  public  press. 

Because  of  aroused  public  opinion  and  an  impending  dis- 
solution which  was  being  prepared  by  the  Government 
against  the  National  Packing  Company,  the  leaders  of  the 
Big  Four  companies  soon  after  their  acquittal  notified  the 
Government  of  their  intention  to  terminate  their  j  oint  owner- 
ship in  the  National  Packing  Company  by  dissolving  it.  The 
dissolution  was  carried  out  in  1912  and  approved  by  the 
Government.  No  doubt  the  vigorous  trust  prosecution  which 
had  just  brought  about  the  dissolution  of  a  number  of  large 

"The  Federal  Antitrust  Laws,  p.  64. 
"Moody's  Manual,  1913,  pp.  1657-8. 
68  Outlook,  V.  96,  p.  144. 


Decisions  and  Dissolution  Decrees  53 


combinations  was  effective  in  leading  the  packers  to  take  this 
action. 

In  dissolving  the  National  Packing  Company  the  distri- 
bution of  the  assets  was  based  upon  share  holdings  in  the 
company.  The  $15,000,000  of  outstanding  stock  were  held 
by  the  Swift,  Armour,  and  Morris  interests.  In  dissolving 
the  company,  the  Swift  interests  received  46  percent  of  the 
assets,  the  Armour  interests  40  percent,  and  the  Morris 
interests  14  percent.60  The  Swift  interests  received  16  pack- 
ing plants  and  stockyard  interests  and  control  of  84  branch 
houses  and  selling  agencies.  The  Armour  interests  received 
10  packing  plants  and  control  of  about  75  branch  houses 
and  selling  agencies.  The  Morris  group  received  4  packing 
plants  and  control  of  about  30  branch  houses  and  selling 
agencies.  Thus,  after  nine  years  of  litigation  the  packers 
somewhat  admitted  of  having  an  illegal  combination  by  vol- 
untarily dissolving  it,  under  the  prc  .mre  of  public  opinion 
and  new  impending  prosecution. 

There  is  no  evidence  to  show  that  any  material  changes 
were  effected  by  the  dissolution.  The  complaint  of  the  public 
press  temporarily  subsided,  but  is  rising  again.  During  the 
three  years  following  the  dissolution  (1913-1915),  the  Swift 
company  increased  its  sales  to  $500,000,000  annually.61  In 
the  last  of  these  years  11,000,000  head  of  live  stock  were 
handled  by  the  company,  and  the  earnings  for  the  year  were 
$14,179,362  or  19  percent  on  the  capital  stock.  The  lowest 
annual  earnings  during  these  years  were  much  higher 
than  those  of  any  previous  year.  During  the  fourth  year 
following  dissolution  (1916)  the  sales  of  the  company  rose  to 
$575,000,000,  and  the  earnings  rose  to  $20,465,000,  or  to 
28.6  percent  on  the  capital  stock  which  had  been  more  than 
doubled  from  1905  to  1912.  President  Swift  said  the  profits 
for  the  year  amounted  to  one-half  a  cent  per  pound  of  out- 
put.62 In  this  year  the  earnings  of  the  Armour  company 
were  $20,100,000,  or  over  100  percent  on  its  $20,000,000  of 
stock  which  had  not  been  increased  since  1904. 63  Both  com- 

•°The  Chronicle,  V.  95,  pp.  547-8. 

«  Moody's  Manual,  1916,  pp.  3571-3. 

"The  Chicago  Daily  Tribune,  Jan.  5,  1917,  p.  16. 

« Ibid.,  Jan.  15. 


54  Trust  Dissolution 

panics  have  increased  their  capital  stock  to  $100,000,000 
by  the  declaration  of  a  stock  dividend. 

In  1915,  five  packing  companies,  including  the  Swift, 
Armour,  and  Morris  companies  and  two  of  their  subsidiaries, 
were  each  fined  $25,000  by  the  Missouri  Supreme  Court  for 
violating  the  state  antitrust  laws.64  The  defendants  made  an 
appeal  from  this  decree,  but  the  appeal  was  dropped  late  in 
1916  as  part  of  an  agreement  with  the  Court  by  which  the 
companies  agreed  to  pay  half  of  the  fines  and  to  give  a 
written  promise  to  obey  the  laws  of  the  state  and  the  orders 
of  the  Court.  In  the  latter  year  a  resolution  was  introduced 
in  Congress  to  have  the  Federal  Trade  Commission  make  an 
investigation  of  conditions  in  the  packing  industry.  This 
resulted  in  intermittent  hearings  before  a  sub-committee  of 
the  house  judiciary  committee.  At  these  hearings  the  cattle- 
men claimed,  among  other  things,  that  the  packers  exercised 
undue  control  over  the  animal  industry  through  their  con- 
trol of  the  stock  yards  by  refusing  to  buy  animals  before  10 
or  11  o'clock  in  the  morning  in  order  to  allow  greater  shrink- 
age to  take  place ;  by  refusing  to  sell  sites  around  the  yards 
for  building  competing  packing  establishments;  and  by  re- 
fusing to  bid  against  each  other  for  live  stock.  Despairing 
of  action  on  the  resolution  by  the  committee  or  by  the  House, 
Congressman  Doolittle  of  Kansas  filed  a  copy  of  the  hearings 
and  charges  against  the  packers  with  the  Federal  Trade 
Commission. 

In  conclusion  it  may  be  said  that  conditions  are  still 
very  favorable  for  maintaining  combination  among  the  pack- 
ers through  a  "gentlemen's  agreement."  It  is  doubtful 
whether  any  investigation  could  reveal  the  extent  and  effects 
of  collusion  among  the  big  packing  companies ;  their  agree- 
ments always  have  been  elusive.  The  steady  encroachment 
of  the  demand  upon  the  meat  supply  of  the  country  has  no 
doubt  aided  successful  combination  in  the  industry.  Per- 
haps the  employment  of  other  means  of  storing  meat  and  the 
increasing  tendency  on  the  part  of  both  consumers  and  stock 
growers  to  organize  for  the  purpose  of  better  marketing  and 
distribution  will  help  to  bring  competition  more  generally 
64  The  Chicago  Daily  Tribune,  Dec.  17,  1916,  p.  1. 


into  th 


Decisions  and  Dissolution  Decrees  55 


into  the  meat  industry.  But  as  long  as  the  bulk  of  the  busi- 
ness remains  under  the  control  of  three  large  companies 
whose  extensive  plants,  selling  agencies,  and  stockyards  are 
strategically  located  throughout  the  country  and  whose 
stocks  are  largely  held  by  a  few  cooperating  individuals  living 
in  the  same  place,  it  will  be  difficult  to  break  up  a  harmony 
of  action  that  has  been  successful  and  highly  profitable  for 
many  years. 

NOTE.  Since  the  above  was  written  a  report  of  the 
Federal  Trade  Commission  on  the  packing  industry  has 
been  published,  which  reaffirms  in  1918  nearly  all  the  previous 
charges  against  the  packers.65  The  Commission  charges  the 
packers  with  being  in  a  definite  and  positive  conspiracy  for 
the  purpose  of  regulating  the  purchase  of  live  stock  and 
controlling  the  price  of  meat,  and  alleges  that  the  "big  five" 
companies  (formerly  the  "Bix  Six"  before  the  dissolution 
of  the  National),  the  Armour,  Swift,  Morris,  Wilson,  and 
Cudahy,  have  a  monopoly  not  only  in  the  meat  industry,  but 
also  in  eggs,  cheese,  and  vegetable-oil  products  and  are 
rapidly  extending  it  to  cover  fish  and  other  foodstuffs.  Not 
only  do  they  control  the  meat  industry  in  the  United  States, 
but  they  also  control  more  than  half  of  the  export  meat 
production  of  Argentina,  Brazil,  and  Uruguay,  and  have 
large  investments  in  other  surplus  meat-producing  countries, 
including  Australia.  Although  the  five  companies  handled 
from  60  to  80  percent  in  the  principal  branches  of  the 
industry,  the  Commission  claimed  that  their  monopolistic 
position  rested  primarily  upon  the  ownership,  separately  or 
jointly,  of  stock  yards,  car  lines,  cold-storage  plants,  branch 
houses,  and  other  essential  facilities  for  the  distribution  of 
perishable  food.  It  also  pointed  out  that  the  control  of 
the  "big  five"  was  held  by  a  very  small  group  of  individuals 
and  that,  excluding  the  profits  of  the  Swift  company  on  its 
South  American  business,  the  profits  of  the  Armour,  Swift, 
Morris,  Wilson,  and  Cudahy  companies  for  1917  were 
19.8,  33.4,  22.6,  29.6,  and  23.2  percent  respectively. 

88  Annals  of  the  American  Academy  of  Political  and  Social  Sciences, 
V.  92,  pp.   170  et  seq. 


56  Triist  Dissolution 

To  make  an  end  of  the  monopoly,  the  Commission  recom- 
mended that  the  Government  should  acquire  through  the 
Railroad  Administration  all  rolling  stock  used  for  the  trans- 
portation of  meat  animals ;  the  principal  stock  yards  of 
country  to  be  treated  as  freight  depots  and  to  be  operated 
under  such  conditions  as  to  insure  competitive  markets;  all 
privately  owned  refrigerator-cars,  and  all  necessary  equip- 
ment for  their  proper  operation ;  such  branch  houses,  cold- 
storage  plants,  and  warehouses  as  are  necessary  to  provide 
facilities  for  the  competitive  marketing  and  storage  of  food 
products  in  the  principal  centers  of  distribution  and  con- 
sumption. 


CHAPTER  III 

THE    DISSOLUTION    OF    THE    STANDARD    OIL    COMPANY 

HE  suit  brought  by  the  United  States  against  the  Stand- 
ard Oil  Company  of  New  Jersey  was  decided  by  the  Su- 
preme Court  on  May  15,  191 1.1  This  decision,  in  which  the 
whole  trust  policy  of  the  court  was  reviewed,  attracted  much 
attention  and  discussion,  since  it  ordered  the  dissolution  of 
the  oldest,  the  best  known,  and  financially,  the  most  power- 
ful of  our  trusts. 

The  petroleum  industry  is  one  of  constantly  increasing 
importance  throughout  the  world.  The  world's  output  in 
1905  was  about  215,000,000  barrels — 45  percent  more  than 
in  1900.  The  United  States  more  than  doubled  its  produc- 
tion from  1900  to  1905.  The  total  output  of  crude  oil  in 
this  country  in  1905  was  134,717,580  barrels  of  42  gallons 
each,  or  more  than  60  percent  of  the  world's  total  produc- 
tion. Of  this  amount  more  than  99  percent  came  from  the 
six  leading  oil  fields  known  as  the  Appalachian,  Lima-Indiana, 
Illinois,  Mid-Continent,  Gulf  (Texas),  and  California  fields. 
The  crude  oil  from  the  Gulf  and  California  fields  contrib- 
uted little  to  the  supply  of  illuminating  oil  and  other  high 
grade  products.  In  this  same  year  66,982,862  barrels  of 
crude  oil  were  used  for  refining  purposes,  yielding  products 
valued  at  $175,005,320.2  Of  these  products,  illuminating 
oils  made  up  52.2  percent  of  the  value,  lubricating  oils  14.2 
percent,  naphtha  and  gasoline  12.2  percent,  paraffin  wax 
5.7  percent,  fuel  and  residuum  7.1  percent,  and  all  other 
products  8.6  percent.3  During  the  decade  following  1905, 

*221  U.  S.  1. 

2  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum  In- 
dustry, part  I,  p.  260. 

"Report  on  Petroleum  Industry,  Part  I,  p.  261. 

57 


58  Trust  Dissolution 

the  production  of  petroleum  in  the  country  was  again  more 
than  doubled  and  the  value  of  its  products  more  than  kept 
pace. 

Four  periods  may  be  marked  out  in  the  history  of  the 
Standard  Oil  interests.4  During  the  first  period,  ending  in 
1882,  almost  complete  mastery  of  the  oil  industry  was  se- 
cured. A  concentration  of  oil  interests  which  formed  the 
basis  of  the  Standard  Oil  system  began  with  a  partnership 
organized  at  Cleveland,  Ohio,  in  1867,  under  the  name  of 
Rockefeller,  Andrews  and  Flagler.  In  1870  this  partnership 
was  converted  into  corporate  form  by  organizing  the  Stand- 
ard Oil  Company  of  Ohio  with  a  capital  stock  of  $1,000,000. 
Although  this  company  was  from  the  start  the  most  import- 
ant individual  refining  concern,  it  had  only  about  10  percent 
of  the  total  refining  capacity,  the  remaining  90  percent  being 
divided  among  about  250  refineries.5  It  had  no  refineries 
outside  of  Cleveland  and  was  not  interested  in  the  production 
of  crude  oil.  A  policy  of  expansion  was  rapidly  carried  out 
by  the  company  and  by  1879  combining  oil  interests,  working 
through  the  Standard  Oil  Company  of  Ohio,  obtained  more 
than  90  percent  of  the  refining  business.0  The  control  was 
secured  through  rebates  and  discriminating  rates  obtained 
from  railroads,  monopolization  of  the  pipe  lines  extending 
from  the  oil  fields  to  the  refineries,  local  price  cutting,  ab- 
sorption of  competing  refineries,  and  restraining  contracts 
with  competitors.7  The  Standard  Oil  was  unexcelled  in  the 
use  of  unfair  methods  of  competition  by  means  of  which  it 
built  up  and  maintained  its  monopoly.  In  a  brief  history 
only  a  few  typical  examples  can  be  given  to  show  how  far  the 
Standard's  position  is  attributable  to  unfair  methods. 

The  most  important  factor  in  establishing  the  Standard's 
monopoly  was  the  railroad  rebate.  Favored  rates  and  re- 
bates were  a  vital  factor  because  the  crude  oil  being  a  rela- 
tively heavy,  bulky,  and  cheap  commodity,  the  transporta- 

4  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum  In- 
dustry, Part  I;  Part  II;  Report  of  the  Commissioner  on  the  Trans- 
portation of  Petroleum;  221  U.  S.  30-45;  Brief  of  Facts  and  Argument 
for  Petitioner  in  suit  against  the  Standard  Oil  Company.  See  Biblio. 

•Report  on  Petroleum  Industry,  Part  I,  p.  48. 

"Ibid.,  pp.  49,  54. 

flbid.,  pp.  49-66;  221  U.  S.  32,  33. 


The  Dissolution  of  the  Standard  Oil  Company       59 

lion  charge  made  up  a  large  part  of  the  price  of  the  oil 
delivered  at  the  refineries.  The  company  continuously  re- 
ceived favored  rates.  The  first  and  one  of  the  most  striking 
illustrations  of  rebates  is  furnished  in  the  case  of  the  South 
Improvement  Company.8  This  corporation  was  organized 
by  the  Standard  interests  in  1872.  It  aimed  to  secure  con- 
trol of  the  business  of  shipping  oil,  and  for  this  purpose  it 
entered  into  agreements  with  the  Pennsylvania,  the  Erie  and 
the  New  York  Central  and  Hudson  River  railroad  companies, 
under  which  a  division  of  the  Standard's  traffic  was  to  be 
made  among  the  three  roads.  At  this  time  competition 
among  the  railroads,  as  well  as  the  refiners,  was  keen.  The 
Standard,  being  the  largest  refiner  and  located  at  Cleveland 
where  strong  railroads  competed  for  the  traffic,  was  able  to 
secure  favored  rates  into  the  city.  The  agreements  named 
the  gross  charges  for  transporting  oil  from  the  oil  fields  to 
refining  centers  and  to  the  seaboard,  and  expressly  provided 
for  rebates  from  the  gross  rates  on  oil  transported  and  con- 
trolled by  the  South  Improvement  Company.  The  gross 
rates,  which  the  independents  paid  were  sharply  advanced. 
They  were  also  much  higher  from  the  chief  shipping  points 
in  the  oil  regions  used  by  the  independents  than  from  the 
points  used  by  the  Standard.9  The  agreements  provided  for 
rebates  to  the  Standard  ranging  in  the  case  of  crude  oil  from 
about  40  to  50  percent  and  on  refined  oils  from  about  25 
to  45  percent  of  the  gross  rates.  The  higher  rebates  favored 
those  points  .used  by  the  Standard.  A  far  more  striking 
and  effective  provision  of  the  agreements  was  that  similar 
rebates  should  be  paid  to  the  South  Improvement  Company 
on  all  oil  transported  for  other  parties.10  No  competitor 
could  long  hold  out  against  such  odds.  For  example,  the 
gross  rate  from  any  common  point  to  Cleveland  was  eighty 
cents  a  barrel.  The  Standard  secured  a  .forty  cent  rebate 
on  all  oil  controlled  by  it  and  in  addition  a  forty  cent  cash 
rebate  on  all  oil  shipped  by  the  independents.  The  agree- 
ments also  provided  that  the  South  Improvement  Company 
should  be  furnished  daily  with  duplicate  copies  of  the  man- 

8  Report  on  Petroleum  Industry,  Part  I,  p.  55  ff. 

9  Ibid.,  pp.  55-6. 
"Ibid.,  p.  55. 


60  Tru$t  Dissolution 

ifest  and  way  bills  of  all  oil  shipments,  which  should  show  the 
name  of  the  consignor,  place  of  shipment,  exact  kind  and 
quantity  of  product  shipped,  name  of  consignee,  and  the 
destination  of  shipments.  In  this  way  were  provided  com- 
plete facilities  for  espionage  upon  the  shipments  of  com- 
petitors. 

The  details  of  the  arrangements  with  the  railroads  were 
effectively  concealed  for  a  time  but  the  facts  soon  became 
known  to  the  independent  shippers  and  provoked  most  in- 
tense antagonism.  In  March,  1872,  less  than  three  months 
after  the  contracts  were  entered  into,  the  railroads  agreed 
to  abandon  them,  to  reduce  rates,  and  to  refrain  in  the  future 
from  all  discriminations  in  charges  upon  oil.  But  during 
these  few  months,  as  a  result  of  impossible  competition  and 
fear,  twenty-one  of  the  twenty-six  refineries  at  Cleveland 
sold  out  to  the  Standard.  These  acquisitions  gave  the 
Standard  20  percent  of  the  total  output.  This  success  was 
soon  followed  by  an  extensive  campaign  for  control  of  re- 
fineries in  other  fields. 

The  Standard  interests  also  entered  into  several  alliances 
with  other  refiners.  The  first  of  these  was  the  Petroleum 
Refiners'  Association  organized  in  1872,  which  is  reported 
to  have  embraced  four-fifths  of  the  refining  interests  of  the 
country.  Mr.  Rockefeller  was  president  of  the  association. 
This  organization  lasted  less  than  a  year.  In  1874  the  Cen- 
tral Association  of  Refiners  was  organized  with  Mr.  Rocke- 
feller as  president.  This  association  embraced  a  large  per- 
centage of  the  refining  capacity  of  the  country.  The  prin- 
cipal feature  of  the  association  agreement  was  that  the 
refiners  entering  it  were  to  conduct  their  manufacturing 
operations  separately,  but  that  the  Standard  was  to  have 
authority  to  make  all  purchases  of  crude  oil  and  sales  of 
refined  oil,  to  decide  how  much  oil  each  refiner  should  manu- 
facture, and  to  negotiate  all  freight  and  pipe  line  expenses.11 
The  influence  secured  by  the  Standard  over  other  refiners 
was  further  increased  because  the  Standard,  in  making  all 
rates,  secured  a  ten  percent  rebate  from  the  railroads.12 

"Report  on  Petroleum  Industry,  Part  I,  pp.  49-50. 


The  Dissolution  of  the  Standard  Oil  Company       61 

In  the  same  year  many  important  refineries  were  acquired 
by  the  Standard  and  many  independents  were  driven  into 
bankruptcy.13  In  the  following  year  the  Standard  Oil  in- 
creased its  capital  stock  to  $3,500,000.  Continuous  acqui- 
sitions of  property  in  the  oil  regions  followed.  The  Stand- 
ard was  also  active  on  the  Atlantic  seaboard  where  it  ac- 
quired the  terminal  facilities  for  unloading,  storing  and 
handling  the  oil  of  the  most  important  railroads. 

It  has  been  pointed  out  above  how  the  Standard  con- 
tinued to  secure  preferential  rates  and  rebates  which  had 
been  the  object  of  the  South  Improvement  Company.  In 
1879  the  Standard  was  receiving  a  rebate  on  its  crude  oil 
from  western  Pennsylvania  fields  amounting  to  no  less  than 
51%  cents  on  a  tariff  rate  of  $1.40  per  barrel.14  At  the 
same  time  it  was  obtaining  a  net  rate  of  80  cents  per  barrel 
on  refined  oil  to  the  seaboard  from  Cleveland  and  western 
Pennsylvania  points,  while  its  competitors  in  western  Penn- 
sylvania, nearer  the  seaboard,  were  paying  $1.44^/2.15  When 
these  rebates  became  known  in  1879,  suits  were  brought 
against  the  Pennsylvania  Railroad  and  the  United  Pipe 
Lines.  Indictments  were  also  obtained  against  a  number  of 
the  most  prominent  Standard  Oil  men.  This  litigation  was 
abandoned,  however,  in  1880,  as  a  result  of  an  agreement 
on  the  part  of  both  the  railroads  and  the  Standard  interests 
to  discontinue  these  abuses.16  This  second  pledge  was  not 
kept  and  the  Standard  continued  to  obtain  secret  rates  and 
other  discriminating  concessions. 

Next  to  railroad  discriminations,  the  most  important 
factor  in  building  up  the  Standard's  supremacy  in  the  oil 
industry  was  the  monopolization  of  the  pipe  lines,  first, 
those  running  from  the  oil  fields  to  the  refineries,  and  later 
those  built  to  the  seaboard.  The  superior  efficiency  and 
safety  of  pipe-line  transportation,  as  compared  with  that  by 
rail,  was  early  recognized.  By  the  early  seventies  nearly 
all  oil  producing  districts  in  the  Appalachian  field  were  con- 
nected by  pipe  lines  with  nearby  refineries  or  with  railroads 

"Report  on  Petroleum  Industry,  Part  I,  pp.  49-50. 
"Ibid.,  pp.  63-4. 
"Ibid.,   pp.    63-4. 
"Ibid.,  p.  65. 


62  Trust  Dissolution 

which  completed  the  haul  to  refineries  at  the  seaboard  or 
other  refining  centers.  There  were  five  pipe-line  systems  in 
these  oil  regions.  The  Standard  proceeded  to  secure  a 
monopoly  by  employing  the  same  methods  used  in  securing 
the  refining  business.  Throughout  the  Standard  had  the  aid 
of  the  railroad  rebates  to  subdue  independent  pipe  lines. 
The  first  system  acquired  was  the  United  Pipe  Lines  in  1874. 
The  acquisition  of  many  other  pipe  lines  soon  followed.  In 
1877  the  Empire  Transportation  Company,  the  strongest 
pipe  line  rival  of  the  Standard,  was  acquired  after  a  bitter 
fight.17  This  company  was  affiliated  with  the  Pennsylvania 
Railroad  and  in  the  bitter  fight  that  ensued  the  Standard 
had  the  assistance  of  other  railroads  entering  the  oil  regions. 
For  a  time  the  Standard  withdrew  all  its  oil  business  from 
the  Pennsylvania  road,  but  after  a  few  months  the  Pennsyl- 
vania terminated  the  struggle  by  a  complete  surrender  of 
the  Empire  Transportation  Company  with  all  its  pipe  lines, 
refineries,  and  tank  cars  to  the  Standard  Oil  Company.18 
This,  together  with  other  acquisitions  in  1877,  gave  the 
Standard  a  dominant  control  of  the  pipe  line  facilities  in  the 
oil  regions.19  It  soon  had  80  percent  of  the  pipe  lines  then 
in  existence.20  No  one  could  reach  the  railroads  without  the 
Standard's  consent. 

The  Standard,  aided  by  both  railroad  advantages  and 
control  of  the  pipe  lines,  rapidly  increased  its  control  of  the 
oil  refining  business.  The  Standard  absorbed  practically  all 
the  independent  refineries  in  the  Oil  Creek  district  of  north- 
western Pennsylvania  and  twenty  of  the  remaining  inde- 
pendent refineries  in  the  Pittsburg  district  between  1875 
and  1877. 21  Practically  the  entire  group  of  independent 
refineries  at  Baltimore  were  absorbed  in  1877. 22  Not  a  year 
passed  without  the  acquisition  of  concerns  competing  in  the 
production,  transportation,  refining  or  marketing  of  petrol- 
eum and  its  products.  Among  these  were  the  largest  oil 

11  Report  on  Petroleum  Industry,  Part  I,  p.  53. 

18  Ibid. 

19  Ibid. 

»  Ibid.,  p.  52. 
81  Ibid.,  p.  50. 
"Ibid. 


The  Dissolution  of  the  Standard  Oil  Company       63 

concerns  in  the  country.  A  great  many  of  the  plants  were 
dismantled  as  soon  as  acquired. 

Some  of  the  larger  acquisitions  were  made  by  the  ex- 
change of  stock  in  the  Standard  Oil  of  Ohio.  Others  were 
acquired  through  the  purchase  of  stock  by  cash  taken  from 
earnings.  In  only  a  few  instances  were  the  acquired  prop- 
erties conveyed  to  the  Standard  Oil  Company.  The  stocks 
of  the  acquired  concerns  were  put  in  the  names  of  the  various 
stockholders  of  the  Standard  Oil  of  Ohio,  but  were  held  for 
the  benefit  of  all  the  stockholders.  The  previous  owners  of 
the  larger  concerns  which  were  acquired  by  the  exchange  of 
stock  became  stockholders  in  the  Standard.  They  usually 
remained  with  their  concern  in  the  capacity  of  manager. 
Often  there  was  no  change  and  the  plant  was  continued  as  a 
bogus  independent.  In  this  way  the  number  of  stockholders 
in  the  Standard  Oil  of  Ohio  increased  from  6  in  1870  to  37 
in  1879.  This  arrangement  of  the  acquired  interests  allowed 
the  greatest  measure  of  secrecy  and  avoided  showing  a  direct 
acquisition  by  the  Standard  Oil  Company. 

The  Standard  interests  having  obtained  a  monopoly  con- 
trol of  the  refining  and  pipe  line  business,  proceeded  to  per- 
fect the  organization  of  the  companies  brought  under  their 
control.  In  1879  a  trust  agreement  was  entered  into  by  the 
terms  of  which  the  sfocks  held  by  the  Standard  interests  were 
turned  over  to  three  trustees,  to  hold,  control,  and  manage 
the  same  for  the  Standard  Oil  Company  of  Ohio.23  The 
trustees  agreed  "as  soon  as  they  could  conveniently  do  so" 
to  divide  and  distribute  the  stocks  among  the  stockholders 
according  to  their  respective  proportions  and  interests.24 

The  Standard  promptly  entered  into  arrangements  for 
a  division  of  its  heavy  traffic  among  the  various  railroads 
entering  the  oil  fields.  The  attempt  to  harmonize  the  sit- 
uation was  soon  disturbed  by  an  unexpected  move  on  the 
part  of  some  independent  oil  interests.  This  was  the  con- 
struction of  a  through  pipe  line  from  the  oil  fields  of  north- 
western Pennsylvania  to  the  seaboard,  109  miles  distant,  by 
the  Tide  Water  Pipe  Company.  The  independent  refiners 

28  Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  21. 
"Ibid. 


64  Trust  Dissolution 

were  ready  to  assist  the  Tide  Water  enterprise  because  it 
would  free  them  from  the  railroads.  The  pipe  line  project 
was  at  first  regarded  by  both  the  Standard  and  the  railroads 
as  being  utterly  impracticable,  but  its  successful  operation 
in  1879  soon  proved  that  a  new  era  had  come  when  oil  trans- 
portation would  be  largely  freed  from  the  railroads.  The 
day  of  the  railroads  as  the  chief  transporters  of  oil,  upon 
which  the  Standard's  monopoly  was  dependent,  was  doomed. 
The  Standard  quickly  attempted  to  gain  control  of  the  pipe 
line.  Again  the  Standard  was  assisted  by  the  railroads 
whose  interests  were  also  involved.  The  railroad  rate  from 
western  Pennsylvania  to  New  York  Harbor  dropped  almost 
in  a  single  day  from  $1.15  to  30  cents  a  barrel,  while  the 
Standard  got  still  lower  secret  rates.25  The  Standard  cut 
its  local  pipe  line  charges.  It  then  proceeded  to  buy  up  the 
feeders  upon  which  the  pipe  line  was  dependent,  thus  reduc- 
ing the  volume  of  business  and  increasing  its  cost  per  unit. 
Attempts  were  also  made  to  ruin  the  credit  of  the  Tide  Water 
Company.  In  1881  the  Standard  interests  acquired  all  ex- 
cept one  of  the  independent  refineries  at  New  York,  which 
furnished  the  market  for  the  Tide  Water  Company's  prod- 
uct.26 The  Tide  Water  interests  immediately  commenced 
the  construction  of  their  own  refineries  at  the  seaboard. 

In  the  meantime  the  Standard  planned  a  pipe  line  of  its 
own,  but  on  a  larger  scale.  In  1881  it  organized  the  Na- 
tional Transit  Company  with  a  capital  of  $5,000,000  for 
the  construction  of  a  trunk  line  to  the  seaboard  which  should 
connect  with  local  pipe  line  systems.  About  the  same  time 
it  succeeded,  by  paying  large  premiums,  in  acquiring  a 
minority  interest  in  the  Tide  Water  Company's  stock.  This 
move,  together  with  the  continued  hostility  of  the  railroads, 
led  to  a  virtual  surrender  on  the  part  of  the  Tide  Water 
interests  in  1883.27  The  contracts  of  agreement  provided 
that  the  total  pipe  line  business  of  the  two  groups  should  be 
divided  between  the  Tide  Water  and  National  Transit  com- 
panies in  the  proportions  of  11.5  percent  and  88.5  percent, 

M  Report  on  Petroleum  Industry,  Part  I,  p.  23. 
"Ibid.,  p.  50. 
« Ibid.,  p.  54. 


The  Dissolution  of  the  Standard  Oil  Company       65 

respectively.28  The  total  business  of  the  refineries  of  these 
two  groups  was  divided  in  the  same  proportions.  The  Tide 
Water  Company  has  since  remained  a  part  of  the  Standard 
Oil  system.  For  a  time  these  two  pipe  line  companies  were 
alone  in  the  trunk  line  business.  The  experience  of  the  Tide 
Water  enterprise  discouraged  the  construction  of  independ- 
ent linas  for  several  years. 

Thus,  during  the  first  period,  the  Standard  obtained 
control  of  from  90  to  95  percent  of  the  oil  refining  business, 
and  nearly  as  large  a  control  of  the  pipe  lines,  first  of  the 
local  pipe  lines  and  later  of  the  trunk  lines.  Its  position 
was  established  primarily  through  the  aid  of  railroad  dis- 
crimination, and  secondarily  through  pipe  line  control. 
The  rebate  ranging  from  a  cent  to  a  cent  and  one-half  per 
gallon  was  sufficient  in  itself  to  give  a  monopoly  in  the  terri- 
tory affected.  *  The  railroads,  in  conspiring  with  the  Stand- 
ard, gave  the  latter  its  monopoly.  The  Standard  covered 
its  agreements  with  the  greatest  secrecy  and  repeatedly  de- 
nied the  true  relations  which  existed  between  it  and  the  other 
oil  interests  which  had  been  acquired.  Throughout  the  peri- 
od unfair  methods  of  competition  were  used  and  the  efforts 
of  the  independent  refiners  and  crude  oil  producers  to  secure 
legislative  and  judicial  relief  were  defeated. 

The  second  period  of  the  oil  combination,  beginning  with 
the  Standard  Oil  Trust  agreement  of  1882  and  ending  in 
1899,  is  known  as  the  "trust  period."  The  agreement  of 
1879  gave  place  to  a  new  trust  agreement  in  January  1882. 29 
The  latter  is  a  typical  example  of  the  trustee  device.  By 
the  terms  of  this  agreement  the  stocks  with  all  their  voting 
rights  and  the  control  over  the  business  and  affairs  of  forty 
corporations  representing  the  Standard  interests  were  turned 
over  to  a  board  of  nine  trustees  to  be  held  for  all  the  parties 
in  interest  jointly  during  the  lives  of  the  survivors  and  sur- 
vivor of  the  trustees  named  in  the  agreement  and  for  twenty- 
one  years  thereafter.  In  exchange  for  the  35,000  shares  of 
stock  held  by  forty-one  stockholders,  a  value  of  $55,710,698, 
the  trustees  issued  700,000  certificates,  the  ratio  of  exchange 

38  Report  on  Petroleum  Industry,  Part  I,  p.  54. 
29  Ibid.,  pp.  361-69. 


66  Trust  Dissolution 

being  1  to  20.30  Of  the  700,000  trust  certificates,  seven  men 
received  451,100.  John  D.  Rockefeller  received  191,700,  or 
27.4  percent  of  the  total.  These  certificates  represented 
the  holder's  equity  in  the  total  property  of  the  combination 
and  served  as  a  basis  for  declaring  dividends. 

The  railroad  discriminations  during  the  first  ten  years  of 
the  trust  period,  if  perhaps  less  audacious  than  before,  were 
still  flagrant.31  In  1884,  the  Standard  interests  entered  into 
an  agreement  with  the  Pennsylvania  Railroad  whereby  the 
latter  was  to  be  credited  with  the  transportation  of  26  per- 
cent of  the  entire  shipment  of  petroleum  to  the  seaboard, 
whether  by  rail  or  by  pipe  line.32  In  return  it  was  agreed 
that  all  joint  rates  from  any  delivery  point  of  the  Standard's 
feeding  pipe  lines  to  any  refining  or  terminal  point  should  be 
fixed  by  the  railroad,  subject  to  the  advice  and  concurrence 
of  the  Standard.  The  rail  rate  which  for  several  years  had 
been  33  cents  per  barrel  from  the  Pennsylvania  oil  fields  to 
the  seaboard  was  now  raised  and  maintained  at  45  cents  per 
barrel  for  many  years.  Since  the  cost  of  pipe  line  transpor- 
tation was  so  much  less  than  by  rail  the  agreement  provided 
that,  wherever  possible,  the  railroad  could  turn  the  oil  over 
to  the  Standard's  pipe  line  and  the  rail  rate  would  be  di- 
vided. The  pipe  line  maintained  the  same  high  rate  as  the 
railroad.  The  result  was  that  the  independent  refiners  were 
practically  prohibited  from  establishing  refining  plants  at 
the  seaboard  where  they  would  be  near  the  large  markets 
offered  by  the  seaboard  cities. 

Other  instances  of  railroad  discriminations  during  the 
trust  period  were  agreements  with  transcontinental  rail- 
roads, which  provided  temporary  and  secret  reduction  of 
rates  to  the  Pacific  coast  to  allow  the  Standard  to  accum- 
ulate large  stocks  of  oil.33  Then  at  the  suggestion  of  the 
Standard  the  rates  would  suddenly  increase.  Another  form 
of  discrimination  which  excited  much  hostility  among  the 
independent  shippers  was  the  giving  of  lower  rates  on  oil  in 
tank  cars  than  in  barrels,  a  favoritism  to  the  largest  shippers 

•°  Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  62. 

"Report  on  Petroleum  Industry,  Part  I,  pp.  73-76. 

"Ibid.,  p.  74. 

88  Ibid.,  pp.  74-5. 


The  Dissolution  of  the  Standard  Oil  Company       67 

using  tank  cars.  In  the  territory  south  of  the  Ohio  river 
the  rates  charged  to  barrel  shippers  in  carloads  ranged 
from  50  to  200  percent  above  the  rates  charged  for  tank 
cars.  Though  the  concessions  were  less,  similar  discrimina- 
tions were  practiced  in  other  sections  of  the  country. 

A  belief  became  quite  prevalent  in  the  oil  regions  that 
combined  opposition  to  the  Standard  was  useless.  However, 
two  conspicuous  instances  of  individual  opposition  Were 
shown  by  the  firm  of  Scofield,  Shurmer  and  Teagle,  and  by 
George  Rice.34  The  former  had  agreed  with  the  Standard  in 
1876  to  limit  its  annual  output  of  refined  oil  to  85,000  bar- 
rels in  return  for  equal  transportation  rates  received  by  the 
Standard.  This  arrangement  was  exceedingly  profitable  be- 
cause of  the  wide  margins  of  profit  secured.  The  firm  began 
to  exceed  slightly  its  85,000  barrels,  offering  the  Standard 
one-half  of  the  excess  profit.  The  Standard  refused  the 
offer  and  in  1880  shut  off  the  firm's  supply  of  crude  oil  which 
now  came  through  the  Standard's  pipe  line.  The  firm  ac- 
cepted the  challenge  and  sought  to  carry  on  a  business  inde- 
pendently of  the  Standard  and  its  rebates.  The  Standard 
was  bold  enough  to  bring  an  injunction  suit  to  force  the  firm 
to  fulfill  its  agreement — an  agreement  in  restraint  of  trade. 
The  case  was  so  evident  that  no  one  could  expect  any  court 
to  uphold  such  an  agreement.  For  many  years  the  firm 
found  their  lot  hard,  having  to  pay  rates  as  much  as  double 
those  of  the  Standard.  After  a  number  of  years  the  firm 
brought  suit  against  the  railroad  for  giving  rebates.  The 
case  finally  reached  the  Supreme  Court  of  Ohio  in  1892  where 
the  firm  won  in  securing  equal  rail  rates,  but  the  discrimi- 
nations for  more  than  ten  years  had  almost  ruined  their  busi- 
ness. 

The  opposition  of  George  Rice  also  grew  out  of  railroad 
discrimination  and  was  important  in  showing  that  the  Stand- 
ard still  received  rebates  on  oil  shipped  by  others.  Mr.  Rice 
built  a  refinery  at  Marietta,  Ohio,  in  1873.  In  1878  his 
business  was  practically  stopped  by  a  local  advance  in  rates 
amounting  to  100  percent.  Not  being  able  to  secure  more 

"Tarbell,   The   History   of   the  Standard   Oil   Company,  V.   II,  pp. 
63-87. 


68  Trust  Dissolution 

reasonable  rates  or  rebates  Mr.  Rice  built  a  pipe  line  of  his 
own  in  1885.  In  the  same  year  he  brought  suit  against  the 
receiver  of  the  Cincinnati  and  Marietta  Railroad.  The  suit 
revealed  an  agreement  between  the  Standard  and  the  railroad 
whereby  the  Standard  got  a  rate  of  ten  cents  per  barrel,  and 
for  others  the  rate  was  fixed  at  thirty-five  cents.  This  alone 
was  a  very  large  discrimination  but  the  railroad  also  turned 
over  to  the  Standard  twenty-five  cents  for  each  barrel 
shipped  by  the  independents.  Within  twelve  days  after  the 
court  had  ordered  that  the  records  should  be  produced  the 
Standard  paid  to  Mr.  Rice  all  that  it  had  received  from  the 
railroad  on  his  shipments.  Refunds  were  likewise  made  to 
two  other  refiners  in  the  same  city. 

The  combination  continued  the  policy  of  absorbing  com- 
petitors. Between  1882  and  1892  stocks  were  acquired  in 
about  78  corporations,  not  including  the  40  that  originally 
entered  the  trust.35  Some  of  these  corporations  were  created 
by  the  trustees.  Such  were  the  Standard  Oil  Companies  of 
several  states.  Others  were  competing  corporations.  Often 
plants  were  dismantled  as  soon  as  acquired.  In  1892  the 
total  number  of  corporations  held  by  the  trustees  was  84. 
Some  of  the  acquisitions  were  made  by  the  issuance  of  new 
trust  certificates,  others  in  cash  out  of  the  earnings  con- 
trolled by  the  trustees.  During  the  ten  years  $12,225,400 
in  trust  certificates  were  issued  for  this  purpose.  These 
additional  certificates,  together  with  a  dividend  in  trust 
certificates  of  $15,034,600  in  1887,  brought  the  total  issue 
up  to  $97,250,000. 

The  independents  met  almost  insurmountable  opposition 
from  the  Standard  in  their  attempts  to  construct  a  pipe 
line  to  the  seaboard  during  this  period.  They  had  sought 
legislative  measures  to  restrict  the  excessive  pipe-line  rates 
and  to  require  the  delivery  of  oil  to  all  persons  desiring  oil 
at  the  different  shipping  points,  but  all  bills  to  this  effect 
were  opposed  by  the  Standard  and  failed  of  passage.  In 
1891  they  determined  to  build  a  pipe  line  because  the  prices 
of  crude  oil  at  the  wells  were  very  low  compared  with  the 
prices  of  refined  oil  at  the  seaboard.  The  Producers'  Oil 
35  Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  pp.  62-3. 


Tlie  Dissolution  of  the  Standard  Oil  Company       69 

Company  was  organized  and  a  pipe  line  was  laid  from  south- 
western Pennsylvania  to  Corapolis,  near  Pittsburg,  from 
whence  the  company  expected  to  ship  by  rail  to  the  seaboard 
for  the  export  market.  But  before  it  was  completed  in  1892 
the  Standard  had  so  lowered  the  price  of  crude  oil  at  the 
seaboard  that  not  a  barrel  was  shipped  by  the  new  company. 
As  a  result  the  pipe  line  was  extended,  after  overcoming  the 
opposition  of  several  railroads  whose  tracks  were  crossed,  to 
Oil  City.  The  independent  refiners  at  this  point,  who  were 
dependent  upon  the  Standard,  organized  into  the  Producers' 
and  Refiners'  Oil  Company,  and  aided  in  the  construction  of 
this  extended  line  which  has  since  furnished  them  their  crude 
oil.  The  latter  company  was  controlled  through  stock 
ownership  by  the  Producers'  Oil  Company.  Later  fche 
Standard  interests  acquired  a  majority  of  the  stock  of  the 
Producers'  Oil  Company,  paying  very  high  prices  for  some  of 
the  shares,  but  were  unable  to  vote  them  because,  according 
to  the  laws  of  Pennsylvania,  a  transfer  of  interest  in  a  lim- 
ited partnership  could  be  prevented  by  a  majority  vote  of 
the  remaining  members  and  stocks.  The  Standard  made  a 
test  of  this  law  in  the  courts  and  the  law  was  upheld. 

In  the  same  year,  1891,  and  growing  out  of  the  same 
conditions,  other  independents  organized  the  United  States 
Pipe  Line  Company  for  the  purpose  of  constructing  a  pipe 
line  to  the  seaboard.  Every  possible  obstruction  was  placed 
in  its  way,  both  by  the  Standard  and  by  the  railroads,  but 
the  evidence  shows  that  the  latter  were  acting  in  the  interest 
of  the  Standard.  They  never  opposed  the  Standard  when  it 
wanted  to  cross  their  lines.  The  pipe  line  company  expected 
to  extend  its  line  to  New  York  Harbor  but  the  first  section 
was  to  be  built  to  Hancock,  New  York,  where  shipments  for 
the  seaboard  would  be  turned  over  to  the  railroad.  This 
section  of  the  line  was  completed  except  across  the  right  of 
way  of  the  Erie  Railroad  which  maintained  a  force  of  men 
for  three  months  to  prevent  making  a  connection.  The 
company  then  took  up  70  miles  of  its  pipes  and  built  the  line 
to  Wilkes-Barre,  contracting  with  the  Central  Railroad  to 
deliver  its  oil  by  rail  at  the  seaboard.  In  building  this  section 


70  Trust  Dissolution 

opposition  from  four  railroads  caused  much  delay  and  in 
some  cases  demanded  court  action. 

Opposition  of  even  a  more  serious  nature  was  encountered 
by  independent  refiners  and  pipe  line  companies  through  the 
manipulation  of  the  prices  of  oil  by  the  Standard.  The 
price  of  crude  oil  was  raised  at  the  wells  and  the  price  of 
refined  oils  much  reduced  at  the  seaboard.  These  conditions, 
which  prevailed  from  1893-5,  were  very  depressing  to  the 
independents,  and  some  of  the  largest  independent  refineries 
were  forced  out  of  business.  For  a  time  the  United  States 
Pipe  Line  carried  oil  for  nothing  in  the  interests  of  the 
producers  and  independent  refiners.  The  Standard  also 
acquired  one-third  of  the  stock  of  the  United  States  Pipe 
Line  Company.  The  stockholders  of  the  latter  refused  to 
let  the  Standard  interests  attend  their  meetings  or  vote  the 
stocks.  In  the  court  action  that  resulted  the  pipe  company 
lost  their  contention  in  the  lower  court  and  their  appeal  to 
the  Supreme  Court  of  the  state  was  quashed  on  technical 
grounds.  The  pipe  line  company  then  put  its  remaining 
stocks  in  a  voting  trust  to  prevent  the  Standard  from  get- 
ting them. 

In  1895  the  United  States  Pipe  Line  undertook  to  com- 
plete its  line  to  New  York  Harbor.  The  first  opposition 
came  from  the  Pennsylvania  Railroad  which  refused  the  right 
to  cross  its  tracks.  The  pipe  line  company  managed  to 
purchase  an  acre  of  ground  along  a  river  bank  to  which  the 
railroad  did  not  have  title,  and  laid  its  pipe  further  to  the 
tracks  of  the  Delaware,  Lackawanna  and  Western  Railroad. 
Here  the  employees  of  the  railroad  and  pipe  line  came  to- 
gether in  a  hand-to-hand  fight.  Both  parties  agreed  to  take 
the  issue  to  the  courts  and  after  six  months  a  decision  of  the 
lower  court  allowed  the  pipe  line  to  cross.  Pending  an  appeal 
by  the  Standard  interests  the  line  was  laid  50  miles  further 
to  another  railroad  shipping  point.  In  attempting  to  ex- 
tend the  line  to  New  York  Harbor  it  was  found  that  the 
Standard  interests  had  taken  out  exclusive  rights  of  way  up- 
on long  strips  of  land  running  up  and  down  across  the  coun- 
try. Next,  the  Supreme  Court  of  New  Jersey  reversed  the 
decision  of  the  lower  court  and  the  pipe  line  company,  finding 


The  Dissolution  of  the  Standard  Oil  Company      71 

from  its  experience  that  it  was  impossible  to  cross  a  state 
having  no  law  giving  the  right  of  eminent  domain  to  pipe 
lines,  took  up  all  its  pipe  lines  in  New  Jersey  and  built  its 
line  south  from  Wilkes-Barre  to  a  seaboard  point  near 
Philadelphia.  This  section  was  completed  in  1901,  nine 
years  after  the  line  had  been  commenced. 

The  Pure  Oil  Company  was  organized  in  1895  for  the 
support  of  the  independents  who  were  tempted  to  sell  out 
to  the  Standard  because  of  the  depressed  oil  prices  during 
the  years  1893-5. S6  This  corporation  was  a  selling  agency 
for  the  independents,  largely  in  the  export  market.  Five 
years  later  the  authorized  stock  issue  of  the  company  was 
raised  from  $1,000,000  to  $10,000,000  and  a  majority  of  the 
stock  of  the  Producers'  Oil  Company,  the  Producers'  and 
Refiners'  Company  and  the  United  States  Pipe  Line  Com- 
pany, was  turned  over  to  it.  The  stocks  in  all  the  companies 
were  put  in  a  voting  trust  so  that  they  could  not  be  secured 
by  the  Standard.  The  Pure  Oil  Company  has  since  remained 
independent  but  owing  to  its  small  capacity  compared  with 
that  of  the  Standard  it  has  never  restored  competition  in 
the  oil  business. 

In  1891  still  another  important  pipe  line  system  was 
begun  by  independent  interests,  a  group  of  Pittsburg 
bankers.37  The  gathering  system,  which  was  very  large, 
was  known  as  the  Mellon  Line,  while  the  trunk  line,  completed 
by  the  same  interests  in  1893  and  extending  271  miles  to 
the  seaboard  near  Philadelphia,  was  known  as  the  Crescent 
Pipe  Line.  In  order  legally  to  purchase  this  line  the  Stand- 
ard interests,  after  several  attempts,  succeeded  in  securing 
the  repeal  of  a  Pennsylvania  law  prohibiting  the  consolida- 
tion of  pipe  lines.  This  occurred  in  1895,  during  the  period 
of  depression  in  the  oil  prices,  and  immediately  after  the 
law  was  repealed  this  entire  pipe  line  system,  including  its 
terminal  refineries,  was  purchased  by  the  Standard.  Several 
other  important  competing  pipe  lines,  not  extending  to  the 
seaboard,  and  running  from  two  to  three  million  barrels  an- 

86  Report  on  Petroleum  Industry,  Part  I,  pp.  126-134. 

87  Ibid.,  Part  I,  p.  83;  Brief  of  Facts  and    Argument    for    Petitioner, 
V.  I,  pp. 


72  Trust  Dissolution 

nually,  were  also  acquired  by  the  Standard  during  the  trust 
period. 

In  1890  the  State  of  Ohio  brought  suit  against  the 
Standard  Oil  Company  of  Ohio,  charging  that  the  company 
had  violated  the  laws  of  the  state  by  entering  into  the 
trust  agreement  of  1882,  and  asking  that  its  charter  be 
forfeited.38  The  case  was  thoroughly  argued  for  a  period 
of  about  two  years.  In  March,  1892,  the  Supreme  Court  of 
Ohio  rendered  a  decision  declaring  the  trust  agreement  to 
be  illegal,  but  instead  of  revoking  the  company's  charter 
the  court  only  ordered  the  company  to  cease  its  connection 
with  the  trust.  The  company  promptly  announced  that  the 
entire  trust  would  be  terminated.  The  trustees  assumed  the 
title  of  "liquidating  trustees"  and  went  through  with  volun- 
tary dissolution  proceedings. 

At  this  time  the  number  of  corporations  controlled  by 
the  trustees  was  84*  and  the  issue  of  trust  certificates  $97,- 
250,000.  The  trustees  first  sold  property  held  by  them  to 
the  amount  of  $1,579,400  and  distributed  the  proceeds. 
Then  the  trustees  transferred  from  themselves  the  stocks  of 
64  of  the  84  corporations  held  by  them  to  certain  of  the 
20  remaining  corporations.  The  shares  of  these  20  com- 
panies selected  to  receive  the  stocks  were  virtually  owned 
by  the  nine  trustees,  or  the  members  of  their  immediate 
families  or  associates.  These  companies  were  then,  and 
remained  thereafter,  the  principal  companies  comprising  the 
Standard  Oil  combination.  The  trustees  next  proceeded  to 
make  a  pro  rata  distribution  of  the  stocks  of  these  20  com- 
panies. The  stock  of  the  20  companies  was  divided  into 
972,500  parts,  corresponding  to  the  number  of  trust  certif- 
icates. Each  certificate  holder  desiring  to  cancel  a  certif- 
icate received  ^7^Vtf¥Part  °^  ^he  stock  of  all  the  companies 
held  by  the  trustees.  The  nine  liquidating  trustees,  the 
members  of  their  immediate  families  and  associates,  owning 
a  large  majority  of  the  certificates,  were  practically  the  only 
ones  who  liquidated  their  certificates,  and  obtained  stock  in 
the  sub-companies.  Since  the  trustees  continued  to  pay  the 
same  dividends  upon  the  certificates  as  they  did  upon  the 
88  Report  of  Petroleum  Industry,  Part  I,  pp.  76  et  seq. 


The  Dissolution  of  the  Standard  Oil  Company       73 

stocks  of  the  sub-companies  and  refused  to  pay  dividends  on 
fractional  shares,  the  small  holders  of  certificates  did  not 
liquidate  their  holdings.  As  a  result  the  nine  trustees  with 
a  few  others,  controlling  a  majority  of  the  stocks  of  each 
of  the  companies,  held  the  only  stocks  voted  at  the  annual 
meetings.  The  large  body  of  trust  certificate  holders  who 
did  not  turn  in  their  certificates  had  no  vote  in  the  manage- 
ment of  these  companies.  This  condition  remained  until 
about  1898-9. 

The  concentration  of  the  stock  within  the  20  companies 
and  the  manner  in  which  the  distribution  was  made  plainly 
showed  an  attempt  to  evade  the  decision  of  the  court  while 
appearing  to  comply  with  it.  The  trust  remained  with 
substantially  the  same  organization  as  before.  The  same 
nine  trustees  had  a  control  as  complete  and  direct  as  before 
and  the  greatest  secrecy  surrounded  all  that  was  done.  The 
leaders  testified  in  court  that  the  trust  was  dissolved  in  ac- 
cordance with  the  decision  of  the  court.39 

We  have  already  shown  how  the  Standard  interests,  fol- 
lowing the  dissolution,  worked  as  a  unit  in  preventing  the 
construction  of  independent  pipe  lines,  manipulating  oil 
prices,  and  acquiring  a  monopoly  of  the  trunk  pipe  line 
systems.  The  belief  became  general  that  the  dissolution 
of  the  trust  had  not  been  sincerely  attempted  and  was  being 
avoided  by  means  of  a  subterfuge.  The  trustees  refused 
to  liquidate  a  trust  certificate  on  the  ground  that  it  would 
result  in  breaking  up  the  certificate  into  a  number  of  almost 
infinitesimal  fractions  of  corporate  shares.40  As  an  incident 
growing  out  of  the  suit  that  followed,  the  Attorney  General 
of  Ohio,  by  order  of  the  Supreme  Court  of  the  State,  insti- 
tuted contempt  proceedings  against  the  Standard  Oil  of 
Ohio  in  1897,  charging  that  the  latter  had  not  withdrawn 
from  the  trust  as  required  by  the  decree.  After  a  large 
amount  of  testimony  was  secured  the  Standard,  fearing  the 
results  of  this  suit,  changed  the  form  of  its  organization  in 
1899,  and  the  suit  was  dismissed  in  the  following  year. 

The  third  period  of  the  Standard  Oil  history  began  with 


"Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  67. 
40  Report  on  Petroleum  Industry,  Part  I,  p.  81. 


74  Trust  Dissolution 

the  organization  of  the  holding  company  in  1899.  The 
Standard  Oil  Company  of  New  Jersey  was  chosen  for  this 
purpose  and  its  charter  was  amended.  The  Standard  inter- 
ests transferred  their  various  properties  and  stocks  to  this 
New  Jersey  company,  the  parent  holding  company.  The 
outstanding  stock  of  the  latter  was  converted  into  common 
stock  and  the  issue  increased  to  $97,250,000,  an  amount 
equal  to  the  trust  certificate  issue  of  1892.  Each  trust 
certificate  was  exchanged  for  a  share  of  stock  in  the  Stand- 
ard Oil  of  New  Jersey.  A  share  of  stock  represented  a  frac- 
tional ownership  in  all  the  interests  and  properties  of  the 
combination.  The  original  stocks  of  all  the  companies  were 
held  in  the  treasury  of  the  company.  The  reorganization 
made  no  essential  change  in  the  position  of  the  Standard 
interests  in  the  oil  industry  because  they  were  kept  intact. 
The  few  largest  shareholders  still  retained  the  same  propor- 
tion of  dominant  control  as  in  1882.  The  change  was  in 
form  only.  It  was  effected  by  an  exchange  of  paper,  piece 
for  piece,  each  representing  the  same  equity,  but  it  gave  the 
combination  legal  standing. 

Although  this  period  of  the  Standard's  history  extends 
to  the  dissolution  of  the  company  in  1911,  a  general  view  of 
the  Standard's  position  with  particular  reference  to  the 
years  1904-6  will  be  given  as  the  suit  to  dissolve  the  com- 
pany was  begun  about  this  time.  Although  the  Standard 
never  acquired  a  monopoly  in  the  production  of  crude  oil, 
yet,  because  of  its  control  of  the  refineries,  pipe-lines,  and 
marketing  facilities,  it  has  always  been  able  to  fix  the  price 
for  the  crude  oil  that  it  buys.41  The  production  of  crude 
oil  is  a  risky  enterprise  in  most  regions  and  the  Standard 
has  tended  to  leave  others  do  the  risky  things  in  the  oil 
business.  It  did  not  become  an  important  producer  of  crude 
oil  until  the  latter  part  of  the  eighties.  Its  greatest  produc- 
tion was  in  the  Appalachian,  Lima-Indiana,  and  Illinois 
fields,  the  fields  where  crude  oils  yielded  the  largest  propor- 
tion of  illuminating  and  lubricating  oils.  These  fields  were 
also  the  most  dependent  on  distant  pipe-line  transportation. 
Of  the  total  production  in  the  Appalachian  and  Lima  fields 
41  Report  on  Petroleum  Industry,  Part  I,  p.  113. 


The  Dissolution  of  the  Standard  Oil  Company       75 

the  Standard  produced  11,019,205  barrels,  or  24.44  percent, 
in  1890,  and  18,469,049  barrels,  or  35.58  percent,  in  1898.42 
During  1906-7  extensive  acreage  and  production  was  secured 
in  the  Illinois  fields.  At  this  time  the  Standard's  production 
in  the  other  fields  was  relatively  unimportant. 

In  all  the  important  oil  fields  except  Texas  and  Cali- 
fornia, the  Standard  bought  from  80-99  percent  of  the  crude 
oil  and  had  almost  unlimited  power  to  fix  the  price  of  crude 
oil,  as  well  as  the  price  of  finished  products.43  The  extensive 
investigations  of  the  Bureau  of  Corporations  grew  out  of 
complaints  to  Congress  on  the  part  of  the  crude  oil  pro- 
ducers of  Kansas  who  were  suffering  from  a  sudden  and 
extraordinary  reduction  in  the  crude  oil  prices  offered  by  the 
Standard,  which,  because  of  its  pipe  line  control,  was  prac- 
tically the  sole  purchaser  of  crude  oil  in  this  field.  The 
Standard  would  not  allow  crude  oil  through  its  pipe  lines 
for  any  except  its  own  refineries.  The  Governor  urged  the 
building  of  a  state  refinery,  claiming  there  was  then  no  com- 
petition. The  construction  of  one  was  begun  but  it  was 
declared  unconstitutional.  The  Kansas  refiners  then  pro- 
ceeded to  build  a  pipe  line  to  the  Gulf  and  the  state  attempted 
to  abolish  discrimination. 

The  Standard,  however,  continued  to  receive  extensive 
railroad  preferences  and  discriminations.  In  1903  the  Elkins 
amendment,  dealing  wholly  with  railroad  discrimination,  was 
added  to  the  Act  of  1887.  It  declared  any  departure  from 
the  published  rates  a  misdemeanor,  and  this  was  made  to 
apply  to  the  shipper  as  well  as  to  the  railroad.  Rebating 
still  continued  under  more  ingenious  forms.  The  investi- 
gations by  the  Bureau  of  Corporations  in  1905  and  1906 
showed  that  the  Standard  continued  to  receive  from  the 
railroads  extensive  and  large  discriminations  in  rates  of 
transportation.44  Because  of  its  enormous  shipments,  and 
because  of  its  influence  in  financial  circles  and  in  the  director- 
ates of  many  of  the  leading  railroad  systems  of  the  country, 

48  Report  on  Petroleum  Industry,  Part  I,  p.  114. 

43  Walker,   Francis,   The   Oil   Trust   and   the   Government,   Pol.   Sci. 
Quart.,  V.  23,  p.  32. 

44  Report  of  the  Bureau  of  Corporations  on  the  Transportation  of 
Petroleum,  1906. 


76  Trust  Dissolution 

the  Standard  was  able  to  demand  material  concessions  from 
most  railroads.  The  railroads  of  the  country  quite  uni- 
formly had  a  system  of  rates  whereby,  with  few  exceptions, 
the  independent  shipping  points  were  discriminated  against 
in  favor  of  the  Standard  shipping  points.  In  many  in- 
stances the  discriminations  were  large  enough  to  give  a  rea- 
sonable profit  upon  the  oil,  often  ranging  as  high  as  one  and 
one-half  cents  per  gallon.  These  discriminations  were  se- 
cured in  connivance  with  the  railroads  through  direct  rebates, 
secret  rates,  discrimination  in  the  open  and  published  rates, 
excessive  prices  allowed  for  equipment,  such  as  tank  cars, 
terminal  rentals,  and  through  the  refusal  of  the  railroads 
to  grant  joint  through  rates  on  oil  for  the  independents 
when  such  a  refusal  favored  the  Standard.  Every  possible 
effort  was  made  to  evade  the  law  by  means  of  blind  billing, 
false  billing,  billing  and  rating  from  insignificant  points, 
arbitrary  weights  on  oil,  and  secret  arrangements  of  tem- 
porary rates. 

The  more  important  secret  rates,  which  covered  a  large 
portion  of  the  country,  were  sufficient  in  themselves  to  give 
control  and  allow  monopoly  prices.45  Other  important  dis- 
criminations occurred  in  the  open  and  published  rates.  The 
extent  of  the  discriminations  plainly  showed  an  agreement 
between  the  Standard  and  the  railroads  to  procure  for  the 
former  a  monopoly  of  the  oil  trade.  To  the  same  end  was 
the  equally  unjust  and  unlawful  refusal  of  the  railroads  to 
give  the  independents  joint  through  rates  into  several  im- 
portant sections  of  the  country. 

Following  the  Bureau's  investigations,  the  Standard 
hastened  to  abolish  discriminations,  withdrawing  the  secret 
rates,  adjusting  the  open  rates,  and  resuming  the  practice 
of  pro-rating  on  oil.  As  a  result  of  the  investigations  the 
Government  brought  criminal  proceedings  against  the  Stand- 
ard interests,  charging  them  with  unlawfully  accepting  dis- 
criminations in  transportation.  Nineteen  indictments,  and 
8,700  counts  were  returned.46  One  of  these  indictments,  the 
one  against  the  Standard  Oil  of  Indiana,  resulted  in  a  fine 

"Walker,  Pol.  Sci.  Quart.,  V.  23,  p.  23. 
46  Ibid.,  pp.   25-51. 


The  Dissolution  of  ihe  Standard  Oil  Company      77 

of  $29,240,000  for  accepting  secret  rebates  from  the  rail- 
roads. The  amount  of  the  fine  imposed  by  the  lower  court 
caused  a  sensation,  but  it  "was  a  bagatelle  compared  with 
the  sums  that  the  Standard  Oil  Company  had  extorted  from 
the  people  very  largely  by  means  of  such  criminal  meth- 
ods."47 An  appeal  of  the  case  by  the  defendant  resulted  in 
the  exculpation  of  the  Standard  Oil  Company  through  the 
aid  of  eminent  counsel  and  the  technicalities  of  the  law. 
As  a  result  only  a  small  fine  was  paid. 

The  Standard's  monopoly  had  become  more  dependent 
upon  its  control  of  the  pipe  lines  of  the  country.  Except 
in  the  California  and  Texas  fields,  nearly  all  the  transporta- 
tion of  crude  oil  was  by  pipe  lines  in  1906.  The  Standard's 
pipe  line  mileage  of  various  sizes  had  increased  from  6,531 
miles  in  1882  to  54,615  miles  in  1906.  Its  position  in  the 
refining  and  marketing  of  oil  was  largely  due  to  its  almost 
complete  control  of  pipe  lines  in  the  Appalachian,  Lima- 
Indiana,  and  Mid-Continent  fields,  from  which  most  of  the 
oils  suitable  for  refining  are  produced.  In  the  Texas  and 
California  fields  much  of  the  transportation  was  by  rail  and 
water.  Although  the  Standard  did  not  have  a  pipe  line 
control  in  these  fields,  its  position  was  not  materially 
weakened,  since  the  crude  oil  production  of  these  fields  con- 
tributes little  to  the  supply  of  illuminating  oil  and  other 
high-grade  oil  products.  The  Standard  is,  however,  increas- 
ing its  pipe  line  control  in  these  fields.  In  1904  the  Stand- 
ard carried  through  its  pipe  lines  about  one-third  of  the 
29,649,434  barrels  produced  in  the  California  field.48  The 
independents  had  but  one  important  trunk  line,  the  only 
independent  line  to  the  seaboard.  This  was  the  pipe  line 
of  the  Pure  Oil  Company,  which  tapped  the  Appalachian 
field,  yet  the  Standard  transported  88.8  percent  of  the  oil 
from  this  field  in  1904.49  The  proportion  of  the  total  pipe 
line  business  to  the  seaboard  controlled  by  the  Standard 
ranged  from  97.5  percent  in  1901  to  95.1  percent  in  1906. 

The  pipe  line  control  was  used  to  prevent  competition. 

«  Walker,  Pol.  Sci.  Quart.,  V.  23,  p.  30. 

48  Report  on  Petroleum  Industry,  Part  I,  p.  151. 

*  Ibid.,  p.  138. 


78  Truest  Dissolution 

The  opposition  to  construction  of  competing  lines,  acquisi- 
tion of  stock  interests  in  competing  lines,  detachment  of  re- 
fineries and  wells  from  independent  pipe  lines,  and  payment 
of  premiums  on  crude  oil  in  territory  reached  by  competing 
lines  have  been  mentioned.  The  payment  of  premiums  on 
crude  oil  was  very  effective  in  defeating  competition.  The 
Bureau  found  a  number  of  regions  in  1904-5  where  this  un- 
fair practice  was  carried  on  under  the  guise  of  bogus  inde- 
dents.50 

Although  the  laws  of  several  states  required  pipe  lines 
to  act  as  common  carriers,  the  Bureau's  investigation  in 
1906  showed  that  the  Standard  pipe  lines  almost  never  trans- 
ported oil  for  others.61  In  most  parts  of  the  Appalachian, 
Lima-Indiana,  and  Mid-Continent  fields  where  there  were 
no  independent  lines  the  Standard  became  the  sole  purchaser 
of  the  crude  oil.  An  independent  refiner  could  not  buy  his 
oil  direct  from  the  producer.  In  the  Mid-Continent  field 
the  Standard  did  not  pretend  to  act  as  a  common  carrier 
and  demanded  that  all  oil  delivered  to  its  pipe  line  become  at 
once  its  property  and  it  sometimes  refused  to  take  oil  from 
producers  who  sold  part  of  their  oil  to  other  concerns.52 
In  some  cases  where  the  Standard  showed  a  willingness  to 
transport  oil  for  others  it  refused  to  deliver  the  oil  at  points 
desired,  but  would  deliver  it  at  places  where  it  was  of  no 
practical  use  to  the  refiner.53  Becoming  the  sole  purchaser 
of  crude  oil  through  its  refusal  to  transport  oil  for  others, 
the  Standard  at  various  times  refused  to  sell  oil  to  independ- 
ent refiners.54  The  refusal  to  transport  or  to  sell  the  crude 
oil  was  a  very  effective  method  of  preventing  competition. 
In  some  cases  where  the  Standard  did  sell  crude  oil  to 
other  refiners  it  sold  less  than  was  desired  and  established 
other  restrictive  conditions.  In  some  instances  it  trans- 
ported oil  for  others  when  threatened  by  suits  or  by  the  con- 
struction of  competing  pipe  lines. 

In  1906  Congress  passed  a  federal  law,  the  Hepburn  act, 

"Report  on  Petroleum  Industry,  Part  I,  p.  155. 
"Ibid., p.  156  et  seq. 
"Ibid.,  p.  159. 
"Ibid.,  pp.  162-3. 
"Ibid.,  pp.  163-6. 


Dissolution  of  the  Standard  Oil  Company       79 

which  declared  that  pipe  lines  engaged  in  interstate  com- 
merce were  common  carriers  and  were  subject  to  all  the 
provisions  of  the  interstate-commerce  act  requiring  reason- 
able rates,  prohibiting  discriminations,  requiring  the  filing 
of  tariff  rates  and  of  reports  with  the  Interstate  Commerce 
Commission.  The  powers  of  this  commission  at  this  time 
were  still  inadequate  for  enforcing  its  orders  over  common 
carriers.  Later  its  powers  were  greatly  increased,  but  still 
no  material  adjustments  occurred  in  the  pipe  line  control, 
its  use,  and  abuse,  which  formed  the  principal  bulwark  of 
the  oil  monopoly. 

The  Standard  practically  rendered  the  Hepburn  act 
imperative  over  its  lines  and  prevented  the  use  of  its  pipe 
lines  by  outside  shippers.  Some  of  its  pipe  lines  filed  tariff 
rates  at  which  they  would  transport  oil  between  certain 
points,  but  the  rates  were  so  high  that  they  were  virtually 
prohibitory.55  These  rates  were  usually  the  same  as  the 
railroad  rates  between  the  same  points.  Since  the  cost 
of  pipe-line  transportation  is  very  much  less  than  by  rail, 
rates  should  be  correspondingly  lower  in  order  that  all  might 
share  in  the  superior  efficiency  of  pipe-line  transportation.56 
The  unreasonable  rates  applied  not  only  to  the  trunk  pipe 
lines  but  also  to  the  Standard's  gathering  line  in  the  oil 
regions. 

Others  of  the  Standard's  pipe  lines  wholly  failed  to  file 
tariffs  and  refused  to  transport  oil  for  others.57  The  Stand- 
ard maintained  that  the  law  only  affected  pipe  lines  which 
exercised  the  right  of  eminent  domain  and  some  of  its  most 
important  lines  therefore  filed  no  tariffs.  In  states  where 
eminent  domain  rights  were  exercised,  the  law  was  usually 
evaded  by  changing  the  legal  ownership  of  that  part  of  the 
pipe  line  within  the  boundaries  of  each  state.  Also  the  pipe 
lines  which  filed  tariffs  failed  to  name  rates  to  some  of  the 
most  important  refining,  marketing  and  consuming  centers 
reached  by  them,  including  points  like  New  York  Harbor 
and  Baltimore,  accessible  only  by  interstate  transporta- 

66  Report  on  Petroleum  Industry,  Part  I,  pp.  182-7;  207  ff. 
"Ibid.,  pp.  207-246. 
"Ibid.,  pp.  183-7. 


80  Truat  Dissolution 

tion.58  The  tariffs  contained  practically  no  rates  between 
points  within  the  same  state.  Most  of  the  tariffs  filed  re- 
quired the  minimum  amount  of  the  shipment  to  be  not  less 
than  75,000  barrels,  and  in  some  cases  300,000  barrels,  min- 
imums  so  high  as  virtually  to  prevent  the  use  of  the  pipe 
lines  by  the  outside  shippers  who,  with  few  exceptions,  could 
not  handle  such  large  amounts.59  Immediately  after  the 
legislation  in  1906  the  Standard  made  a  complete  change  in 
the  method  of  publishing  statistics  of  their  business.  Prior 
to  this  year  the  various  pipe  lines  in  their  daily,  monthly  and 
annual  reports  sharply  distinguished  between  crude  oil  from 
the  different  fields.  These  reports  were  of  great  statistical 
value  to  producers,  refiners,  and  others  in  determining  their 
policy.  They  contained  data  for  ascertaining  the  amount 
and  grade  of  oil  from  each  field,  number  of  runs  and  ship- 
ments. After  this  year  the  pipe  line  reports  did  not  dis- 
tinguish between  the  different  kinds  of  oil.  The  result  was 
to  impair  greatly  the  value  of  pipe-line  statistics  for  the 
information  of  the  public. 

The  Bureau  considered  the  practicability  of  pipe  lines 
acting  as  common  carriers.60  Pipe  line  transportation  is 
obviously  different  from  transportation  by  rail  or  water.  A 
pipe  line  could  not  be  expected  to  transport  oil  in  a  direction 
contrary  to  that  of  the  ordinary  movement  except  in  very 
large  quantities.  This  difficulty  hardly  ever  arises  in  prac- 
tice. Again  the  capacity  of  a  pipe  line  is  strictly  limited 
while  the  production  of  the  wells  is  irregular  and  frequently 
of  greater  capacity  than  the  pipe  line.  This  raises  ques- 
tions of  adjustment  of  claims  of  different  shippers  to  uses 
of  the  lines  and  of  what  constitutes  reasonable  storage  facil- 
ities on  the  part  of  a  common  carrier.  When  this  difficulty 
arises  it  is  usually  of  a  temporary  nature.  These  difficulties 
are  analogous  to  those  that  have  been  met  in  regulating  the 
railroads.  They  do  not  weaken  the  claim  that  pipe  lines 
shall  be  made  common  carriers.  Where  the  delivery  of  oil 
from  the  common  stock  is  satisfactory  to  shippers  and  con- 

88  Report  on  Petroleum  Industry,  Part  I,  pp.  187-9. 
w  Ibid.,  pp.  189-191. 
"Ibid.,  pp.  196-206. 


The  Dissolution  of  the  Standard  Oil  Company       81 

signees,  separation  of  shipments  is  unnecessary  and  difficul- 
ties could  easily  be  adjusted.  In  cases  where  it  is  prac- 
ticable to  keep  the  shipments  of  oil  separate,  the  minimum 
amount  of  each  shipment  can  be  made  much  lower  than  the 
Standard's  requirement.  However,  the  conclusion  of  the 
Bureau,  the  practice  of  the  Standard,  and  the  testimony  of 
the  independents  tend  to  establish  the  fact  that  in  each  of 
the  important  oil  fields  the  difference  in  the  quality  of  oils 
from  different  wells  in  the  same  pools,  and  sometimes  from 
all  in  the  same  field,  are  comparatively  slight,  the  oils  being 
so  nearly  uniform  that  pipe  lines  could  transport  the  oil  as 
common  carriers  without  keeping  individual  shipments  sep- 
arate.61 If  this  were  done  pipe  lines  could  accept  shipments 
or  make  deliveries  in  comparatively  small  quantities,  not 
exceeding  a  few  hundred  barrels. 

The  Standard's  control  over  crude  oil  prices,  which  is 
measured  chiefly  by  its  proportion  of  pipe  line  business,  does 
not  directly  measure  its  control  over  the  finished  products. 
Only  66,982,862  barrels,  or  about  one-half  of  the  amount  of 
crude  oil  produced  in  1904,  was  refined  within  the  country. 
Of  this  amount  the  Standard  refineries,  though  much  less 
than  half  the  number  of  independent  refineries,  consumed 
84.2  percent.  However,  the  Standard's  proportion  of  re- 
fined products  was  86.5  percent  because  it  used  a  larger 
proportion  of  the  crude  oil  yielding  the  largest  amount  of 
refined  products.62  Moreover,  nearly  one-third  of  the  out- 
put of  the  independents  was  from  refineries  which  were 
chiefly  or  wholly  dependent  on  the  Standard  for  their  crude 
oil.  Many  independents  were  allowed  only  as  much  crude 
oil  as  the  Standard  saw  fit  to  give  them,  and  were  some- 
times required  to  sell  their  refined  output  to  the  Standard. 
Less  than  10  percent  of  the  national  production  came  from 
wholly  independent  concerns.63  The  Standard  controlled 
about  the  same  percentage  of  the  total  output  of  naphtha 
and  lubricating  oils.64  Lubricating  oils  constitute  about 
14.2  percent  of  the  value  of  petroleum  products.  The 

"Report  on  Petroleum  Industry,  Part  I,  pp.  204-6. 

"Ibid.,  pp.  280,  289. 

B3  Ibid.,  p.  282. 

"Ibid. 


82  Tru$t  Dissolution 

Standard's  control  in  this  branch  is  shown  by  the  fact  that 
it  furnished  from  95  to  97%  percent  of  the  lubricating  oil 
used  on  the  steam  railroads  of  the  country.  Its  proportion 
of  the  low  grade  products,  gas  oil  and  fuel  oil,  which  are 
largely  produced  from  the  Texas  and  California  crude  oils, 
was  less. 

The  Standard  also  dominated  the  export  trade.  Of  a 
total  production  of  27,135,094?  barrels  of  illuminating  oil 
in  1904,  15,227,163  barrels,  or  about  56  percent,  were 
exported.65  The  Standard's  percentage  of  the  export  busi- 
ness in  refined  oil  ranged  between  90.8  percent  in  1900  and 
86.3  percent  in  1906.66 

The  Standard's  control  of  marketing  facilities  greatly 
aided  the  practice  of  price  discrimination  in  the  sale  of  its 
products  and  it  was  one  of  the  chief  sources  of  maintaining 
its  monopoly  control.  The  control  of  the  pipe  lines  and 
refining  business,  together  with  unlawful  advantages  in  trans- 
portation, enabled  the  Standard  to  monopolize  quite  com- 
pletely the  sale  of  petroleum  products,  and  thus  strengthen 
its  control  of  prices.  Most  refined  oil  is  marketed  by  means 
of  tank  cars,  tank  stations,  and  tank  wagons,  which  deliver 
the  oil  to  the  retailer  in  bulk  without  the  use  of  barrels  or 
other  packages.  Bulk  distribution  is  usually  cheaper, 
cleaner,  safer  and  more  convenient  for  the  retailer. 

The  Standard  made  its  selling  control  effective  by  estab- 
lishing a  universal  and  efficient  system  of  marketing  its  prod- 
ucts directly  to  the  retailer  and  large  consumers.  It  divided 
the  country  into  ten  large  marketing  districts  and  assigned 
an  exclusive  marketing  company  to  each  district.  The  mar- 
keting company  purchases  the  oil  at  the  refineries  and  ships 
it  to  the  main  and  substations  where  it  is  unloaded  into  large 
tanks  and  distributed  by  tank  wagons  to  the  retail  dealers 
and  larger  consumers  in  the  near-by  towns.  By  the  estab- 
lishment of  this  system  the  eliminated  jobbers  were  usually 
forced  to  sell  their  wagons  and  storage  equipment  to  the 
Standard.  Were  oil  marketed  through  jobbers,  competition 
would  result  in  most  towns  of  any  considerable  size.  No 

"Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  164. 
•  Ibid. 


The  Dissolution  of  the  Standard  Oil  Company       83 

other  concern  except  the  Standard  has  been  a*ble  to  do  a 
sufficient  amount  of  business  to  warrant  the  establishment 
of  marketing  facilities  over  a  large  area.  The  independents 
have  relatively  few  tank  wagons  and  in  most  towns  their 
deliveries  are  made  by  barrels,  which  is  an  ineffective  method 
of  competition.  The  independents,  whose  selling  areas  are 
very  limited,  are  not  able  to  compete  with  the  Standard  on 
equal  terms.  The  Standard  has  been  able  to  prevent  the 
development  of  bulk  delivery  by  the  independents  through 
cutting  prices  sharply  where  the  latter  seek  a  foothold.  The 
independents  fear  to  go  to  the  expense  of  entering  a  new 
field  no  matter  how  tempting  the  prices.  They  cannot  meet 
the  price  cutting  of  the  Standard  which  can  sell  below  cost 
in  contested  regions  and  at  the  same  time  enjoy  enormous 
profits  on  its  business  as  a  whole.  As  a  result,  there  are 
large  sections  of  the  country  where  almost  no  independent 
oil  is  sold  and  the  Standard  sells  the  greater  part  of  its 
products  without  any  competition.67  Reports  secured  by 
the  Bureau  during  1904  from  3,854  towns  scattered  through- 
out the  country  showed  that  the  Standard  made  all  the  de- 
liveries of  oil  in  85.4  percent,  and  part  or  all  in  95.8  per- 
cent.68 Of  5,397  dealers  reporting,  88.2  percent  made  their 
purchases  exclusively  from  the  Standard.69  There  were  146 
reports  of  purchases  from  Standard  concerns  which  were 
represented  as  being  independent  in  order  to  secure  the  trade 
of  anti-trust  purchasers.  The  Standard  marketed  from 
84.8  percent  to  90.1  percent  of  the  illuminating  oil  in  the 
country  from  1900  to  1906.70  These  proportions  were 
substantially  the  same  for  all  of  North  America.  Its  pro- 
portion of  sales  varies  in  1904  from  84  percent  for  the 
southern  part  of  the  North  Atlantic  States,  to  99.1  percent 
for  the  Rocky  Mountain  States,  and  99.8  percent  in  Mexico. 
A  study  of  the  Standard's  profits  also  indicates  a  mo- 
nopoly and  its  abuse.  The  total  investment  put  into  the 
Standard  Oil  Company  from  its  organization  to  1911  has 

91  Report  on  Petroleum  Industry,  Part  I,  p.  330. 

88  Ibid.,  pp.  299-300. 

•Ibid., p.  296. 

"Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  162. 


84  Trust  Dissolution 

been  $69,024,480.71  Whatever  other  property  the  Standard 
owns  to-day  has  come  from  earnings  over  and  above  the 
dividends  paid.  The  capitalization  has  remained  approxi- 
mately at  $97,250,000  since  1890.  The  dividends  paid  from 
1882  to  1906  amounted  to  $548,436,446,  an  amount  equal 
to  32  percent  per  annum  on  the  original  investment.72  In 
addition  to  these  dividends  there  was  at  the  close  of  1906 
a  surplus  of  $261,061,811.73  The  total  earnings  from  1882 
to  1906  amounted  to  $838,783,783.  The  significance  of 
these  earnings  is  better  shown  if  we  consider  the  later  years 
when  the  monopoly  was  well  established.  During  the  ten 
year  period  ending  in  1906  the  declared  dividends  ranged 
from  31  to  48  percent,  and  the  average  annual  earnings 
were  $60,000,000.74  The  earnings  on  the  assets  from  1900 
to  1906  averaged  25.2  percent.75  The  net  value  of  the  as- 
sets at  the  close  of  1906  was  $359,400,193,  and  the  earnings 
for  the  year  were  $83,122,251,  or  121  percent  on  the 
original  investment.76  A  40  percent  dividend  on  the  capital 
stock  left  a  surplus  for  the  year  amounting  to  $43,786,931. 
Frank  B.  Kellogg,  Special  Counsel  for  the  Government 
in  the  dissolution  suit,  says  the  Standard  Oil  had,  in  1906, 
"a  $261,068,811  surplus  and  since  that  time  for  five  years 
it  has  been  piling  up  more  surplus  at  the  rate  of  probably 
forty  million  dollars  per  annum  (beside  a  dividend  of  about 
40  percent  per  annum)  so  that  its  total  assets  at  the  time  of 
the  dissolution  (1911)  undoubtedly  amounted,  on  the  books 
of  the  Company,  to  over  $600,000,000.  What  the  real 
value  was  beyond  the  book  value,  no  one  knows  to  this  day. 
*  *  *  No  corporation  ever  existed  in  this  country  with 
such  earning  capacity  or  such  secrecy  in  its  business."  77 
On  the  whole  the  profits  have  shown  a  remarkable  increase 
from  year  to  year  and  enormous  earnings  in  periods  when 
most  other  manufacturing  concerns  were  losing  money. 

71  Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  168. 

"Ibid.,  p.    168. 

"Ibid.,  p.  169. 

"Ibid.,  pp.  168,  173. 

78  Ibid.,  p.  171. 

"Ibid.,  pp.  166,  171. 

"American  Review  of  Reviews,  V.  45,  pp.  729-30. 


The  Dissolution  of  the  Standard  Oil  Company      85 


These  steady,  exorbitant  and  monopolistic  profits  have  been 
obtained  by  maintaining  through  unfair  competitive  meth- 
ods and  advantages  the  control  of  from  85  to  97%  percent 
of  the  business  of  transporting,  manufacturing  and  market- 
ing petroleum  and  its  products. 

The  Standard  monopoly  is  further  shown  in  the  move- 
ment of  oil  prices.78  The  increased  profits  were  not  due  to 
an  increased  volume  of  business  alone.  The  average  price  of 
refined  oil  at  the  refineries  for  the  four  year  period  1895- 
1906  was  5.6  cents,  while  for  the  four  years  1903-1906  it 
was  7.8  cents,  an  increase  of  2.2  cents  per  gallon.79  On 
the  same  basis  naphtha  increased  from  5.87  cents  to  9.71 
cents.  The  costs  represented  in  these  figures  were  those  of 
pipe-line  transportation,  refining,  and  crude  oil.  The  pipe- 
line transportation  had  not  increased.80  The  increase  of 
refining  cost  per  gallon  was  very  insignificant.81  The  aver- 
age price  of  crude  oil  consumed  increased  about  %  of  a 
cent,  being  2.09  cents  for  the  first  four  year  period  and  2.87 
cents  for  the  latter.82  A  similar  comparison  of  the  crude 
oil  prices  with  the  average  price  for  the  principal  finished 
products,  refined  oil,  gasoline  and  paraffin  for  the  two  peri- 
ods shows  that  the  margin  per  gallon  increased  from  4.37 
to  6.55  cents,  an  increase  of  2.18  cents,  or  exactly  50  per- 
cent.83 The  margins  were  sufficiently  high  for  the  first 
period  to  secure  excessive  earnings.  Each  additional  cent 
per  gallon  on  the  products  sold  by  the  Standard  in  1904 
made  a  profit  of  $14,000,000.  This  increased  margin 
largely  accounted  for  the  rapid  increase  of  earnings  begin- 
ning about  1896-7.  In  no  previous  year  had  the  Standard 
made  a  profit  exceeding  1.9  cents  per  gallon  on  the  crude 
oil.  In  1903  the  Standard  made  a  profit  of  3.7  cents  on 
every  gallon  of  crude  oil  consumed  by  its  refineries.84  The 

"Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  pp.  182-5. 

"Ibid.,  p.  196. 

•°  Ibid.,  p.  200. 

81  Ibid. 

"Ibid., p.  204. 

» Ibid. 

84  Ibid.,  p.  205. 


86  Trust  Dissolution 

average  for  the  period  1900-1906  was  substantially  3  cents 
per  gallon.  The  Bureau  claimed  that  %  of  a  cent  per 
gallon  was  enough  to  make  the  whole  industry  profit- 
able.85 

Large  price  discriminations  attended  the  sale  of  the 
Standard's  products  in  the  home  markets.  The  powerful 
direct  selling  organization  of  the  company,  covering  the 
entire  country,  always  followed  a  policy  of  charging  what 
the  market  would  bear.  Most  glaring  discriminations  re- 
sulted from  adjusting  prices  according  to  the  degree  of 
competition  encountered.  The  Standard  sold  the  bulk  of 
its  products  under  noncompetitive  conditions  and  extended 
such  conditions  by  aggressive  price  cutting,  aften  selling 
below  cost.  In  arriving  at  the  margins  of  the  above  para- 
graph the  marketing  profits  were  not  included.  On  all  the 
products  sold  by  the  Standard  in  the  United  States  be- 
tween 1901  and  1906  the  marketing  profit  ranged  from  1.5 
to  1.9  cents  per  gallon.86  Some  of  the  companies  received 
as  high  as  4  and  5  cents  profit  per  gallon  on  marketing.87 
In  1904  the  average  price  of  illuminating  oil  in  the  differ- 
ent Atlantic  seaboard  states  dependent  upon  the  same 
source  of  supply,  after  deducting  transportation  costs, 
ranged  from  7.7  cents  in  Pennsylvania  to  12.8  cents  in 
Florida.88  Similar  differences  ranging  from  8.5  to  13.9 
cents  occurred  in  states  supplied  from  the  same  refineries  in 
the  Lima-Indiana  field.  Equally  great  differences  existed 
between  individual  cities.  The  average  price  per  gallon  in 
December,  1904,  after  deducting  freight  costs,  was  7.5  in 
Worcester,  11.3  in  Jersey  City,  7.8  in  Richmond,  and  12.5 
cents  in  Jacksonville.89  These  differences  represented  sub- 
stantially differences  in  profit  since  these  cities  were  all 
supplied  from  the  seaboard  refineries  and  under  practically 
the  same  conditions  of  cost.  In  some  cases  net  prices,  after 
deducting  freight,  have  been  almost  double  those  in  another 

"  Report  on  Petroleum  Industry,  Part  II,  p.  55. 

"  Brief  of  Facts  and  Argument  for  Petitioner,  V.  I,  p.  190. 

87  Report  on  Petroleum  Industry,  Part  II,  pp.  35-6. 

88  Walker,  Pol.  Sci.  Quart.,  V.  23,  p.  41. 

88  Report  on  Petroleum  Industry,  Part  II,  p.  34. 


The  Dissolution  of  the  Standard  Oil  Company       87 

locality  in  the  same  state.90  Similar  discriminations  were 
practiced  in  the  sale  of  gasoline.91  The  differences  in  the 
margins  of  profit  between  the  large  divisions,  between  states, 
and  even  between  towns  in  the  same  state,  make  it  certain 
that  prices  were  adjusted  according  to  the  degree  of  com- 
petition encountered. 

Even  greater  discrimination  occurred  in  the  sale  of 
lubricating  oils.92  The  Standard  through  the  Galena-Signal 
Oil  Company  supplied  about  97.5  percent  of  the  lubricating 
oils  used  in  the  United  States,  Mexico  and  Canada.93  Most 
of  these  oils  were  sold  directly  to  the  railroads  and  factories. 
The  invoice  price  of -the  oils  was  alike  to  all  railroads,  but 
most  of  the  railroads  received  a  rebate.  The  data  for  94 
railroads  showed  that  41  paid  the  full  invoice  price,  17  paid 
95.7  percent,  15  paid  85.5  percent,  12  paid  74.4  percent, 
and  8  paid  57.6  percent,  while  the  Pennsylvania  Railroad, 
the  largest  user,  paid  only  47.5  percent  of  the  invoice 
price.94  The  Pennsylvania  road  tapped  two  large  oil  fields 
and  passed  through  the  regions  where  most  of  the  independ- 
ent refineries  were  located.  It  was  therefore  in  a  better 
position  to  harm  the  Standard.  The  less  favored  roads 
paid  the  excessive  prices  rather  than  buy  from  the  inde- 
pendents because  they  feared  to  incur  the  displeasure  of  so 
large  a  shipper  as  the  Standard  and  because  of  the  Stand- 
ard's influence  in  financial  circles.  The  Standard  also  had 
a  powerful  influence  in  the  directorates  of  some  of  the 
roads.  As  a  result  most  of  the  roads  refrained  from  buy- 
ing of  independents  regardless  of  the  prices  or  quality  of 
oil  offered,  and  bought  from  the  Standard  at  prices  double 
those  established  'by  competition.  The  excessive  payment  to 
the  Standard  for  lubricating  oils  over  a  fair  market  value 
amounted  to  more  than  $2,000,000  annually.  The  annual 
profits  of  the  Galena  Company  were  over  100  percent  on  its 
net  assets  from  1902  to  1906.95  In  effect,  the  excessive 

90  Report  on  Petroleum  Industry,  Part  II,  p.  37. 
81  Ibid.,  pp.  508-520. 
92  Ibid.,  pp.  670-739. 
98  Ibid.,  pp.  671-2. 

94  Ibid.,  p.  677. 

95  Brief  of  Facts  and  Argument  for  Petitioner,  V.  II,  p.  503. 


88  Trust  Dissolution 

payments  were  the  same  as  rebates  to  the  Standard  and 
show  in  a  striking  way  the  power  of  the  Standard  and  the 
extent  to  which  it  is  used. 

There  were  also  large  discriminations  against  the  domes- 
tic consumers  in  favor  of  foreign  consumers.96  From  June, 
1903,  to  August,  190.5,  the  over-charge,  after  allowing  for 
differences  in  quality  of  oil  and  transportation  costs, 
amounted  to  two  cents  per  gallon  in  the  two  largest  export 
markets.97  These  lower  prices  abroad  could  not  be  attrib- 
uted to  an  over-supply  of  oil.  The  Standard  was  crushing 
competitors  in  foreign  fields.  Such  a  policy  was  possible 
because  the  prices  of  domestic  crude  oil  were  reduced  and 
the  domestic  consumer  paid  monopoly  prices  for  the  fin- 
ished products. 

The  large  economies  and  advantages  obtained  by  the 
Standard  did  not  benefit  the  consumer.  The  Standard 
always  sought  to  prevent  competitors  from  becoming  large 
enough  to  secure  the  economies  it  possessed.  The  most 
important  economy  was  pipe-line  transportation.  But  it 
has  been  shown  that  the  independents  proved  this  economy 
first  and  that  the  Standard  later  obtained  almost  complete 
control  over  it  by  the  most  unfair  methods.  This  advantage 
over  competitors  amounted  to  about  %  of  a  cent  per  gallon 
of  crude  oil — enough  to  make  the  whole  industry  profit- 
able.98 

Another  economy  resulted  from  the  location  of  refiner- 
ies near  the  great  consuming  and  shipping  centers.  Here 
again  the  independents  were  equally  early  in  locating  their 
refineries  in  the  seaboard  markets  and  chief  consuming 
centers,  but  they  were  largely  deprived  of  these  economies 
by  the  Standard's  exclusive  use  of  pipe  lines  and  by  rail- 
road discriminations.  As  a  result  the  independent  refin- 
eries not  absorbed  were  usually  smaller  and  disadvanta- 
geously  located  near  the  crude  oil  sources.  The  Standard's 
advantage  in  refining  efficiency  was  estimated  to  be  from  % 
to  %  cents  per  gallon.  The  marketing  economy  of  the 

86  Walker,  Pol.  Sci.  Quart.,  V.  23,  pp.  39-41. 

"Walker,  Idem. 

98  Report  on  Petroleum  Industry,  Part  II,  p.  55. 


The  Dissolution  of  the  Standard  Oil  Company      89 

Standard  could  also  be  equally  practiced  in  general  by  the 
independents,  as  it  now  is  in  places,  if  local  price  cutting 
and  other  unfair  marketing  methods  were  eliminated.  The 
Standard  is  said  to  pay  a  profit  to  nobody.  It  elaborated 
its  by-products  and  manufactured  most  of  its  supplies  such 
as  barrels  and  tanks.  Its  whole  business  is  centralized  and 
efficiently  managed  by  men  selected  for  each  post,  and  these 
are  supplied  with  all  useful  information. 

The  preferences  continuously  enjoyed  by  the  Standard 
were  of  course  not  economies,  but  they  gave  an  overwhelm- 
ing advantage  over  competitors.  Yet  these  advantages  so 
exclusively  enjoyed  have  not  led  to  price  reductions.  Com- 
pared with  the  prices  of  crude  oil  the  domestic  prices  of 
refined  products  showed  a  marked  advance  during  the  decade 
1896  to  1906. 

The  Bureau  of  Corporations  emphatically  denied  the 
claim  that  the  position  of  the  Standard  in  the  oil  industry 
was  due  to  its  superior  efficiency  and  denounced  such  a 
claim  as  "a  complete  misrepresentation  of  the  facts."9 
Its  position  was  attributed  to  the  continuous  use  of  grossly 
unfair  methods  of  competition.100  First,  in  the  attainment 
and  use  of  its  pipe  line  control.  A  second  and  equally  unfair 
advantage  was  railroad  discrimination,  the  cornerstone  upon 
which  the  Standard  built  up  its  power  and  which  continued 
to  be  one  of  the  chief,  if  not  the  chief,  element  of  its  strength. 
The  third  unfair  method  was  flagrant  price  discriminations. 
When  monopoly  control  had  been  partially  secured  price 
discrimination  became  a  powerful  means  both  in  maintain- 
ing it  and  in  exacting  prices  far  above  the  competitive  level. 
Other  unfair  methods  were  deception  as  to  the  quality  of 
products  sold,  short  measure,  extensive  espionage,  political 
activities,  operation  of  bogus  independent  companies  and 
the  unfair  manipulation  of  the  system  of  public  inspection 
of  illuminating  oils.  If  these  unfair  advantages  were  re- 
moved the  Bureau  believed  that  the  Standard  could  not 
monopolize  the  oil  industry.  Had  they  not  prevailed  it 
believed  that  a  limited  number  of  oil  concerns  would  have 


"Report  on  Petroleum  Industry,  Part  II,  p.  58. 
100  Ibid.,  pp.  52-8;  Part  I,  pp.  666-9. 


90  Trust  Dissolution 

developed  "each  equipped  with  efficient  methods  of  trans- 
portation, refining,  and  marketing,  so  that  it  could  do  busi- 
ness at  practically  as  low  a  cost  as  that  of  the  Standard 
to-day;  and  prices  charged  to  the  consumer  would  have 
been  much  lower  than  they  now  are."101  With  unfair  meth- 
ods and  advantages  abolished,  the  independents  would  assure 
the  selling  of  oil  in  all  parts  of  the  country  on  the  basis  of 
reasonable  prices  and  profits. 

It  was  not  until  1906,  sixteen  years  after  the  passage 
of  the  Sherman  law,  that  the  Government  filed  a  bill  to  dis- 
solve the  Standard  Oil  Company,  the  general  charge  being 
combination  and  conspiracy  in  restraint  of  trade  in  the 
production  and  sale  of  petroleum.  The  prosecution  was 
aided  by  the  elaborate  investigations  of  the  Bureau  of  Cor- 
porations. The  taking  of  testimony  was  begun  in  Septem- 
ber, 1907,  and  continued  into  1909.  The  detailed  facts 
covering  a  period  of  about  forty  years  were  so  involved 
that  the  testimony  taken  for  the  case  alone  filled  12,000 
printed  pages. 

The  Circuit  Court  rendered  a  decree  of  dissolution  in 
1909.102  From  this  decree  the  defendants  appealed  to  the 
Supreme  Court.  In  May,  1911,  the  Supreme  Court  by  a 
unanimous  vote  sustained  the  dissolution  decree  of  the  lower 
court  on  the  following  grounds : 

"(A)  Because  the  unification  of  so  vast  a  power  and 
control  in  the  New  Jersey  corporation  caused  a  prima- 
facie  presumption  of  intent  and  purpose  to  achieve  and 
maintain  a  monopoly  in  the  oil  business^by  unusual  methods. 

"(B)  This  presumption  was  made  conclusive  by  con- 
sidering the  conduct  of  those  who  brought  about  the  New 
Jersey  Combination,  both  before  its  organization  during  the 
days  of  the  trust  agreements  of  1879  and  1882,  and  at  the 
time  of  vesting  power  in  the  New  Jersey  Corporation,  as 
well  as  by  weighing  the  manner  in  which  this  power  has  been 
exerted  and  the  results  which  have  risen  from  it."103 

101  Report  on  Petroleum  Industry,  Part  I,  p.  332. 
103 173  Fed.  Rep.,  pp.  177-200. 

108  221  U.S.  75. 


The  Dissolution  of  the  Standard  Oil  Company       91 

The  relief  asked  for  by  the  Government  was:104  (1)  that 
the  combination  be  held  illegal  and  the  parties  thereto  be 
perpetually  enjoined  from  doing  any  further  act  to  give 
effect  to  it;  (2)  that  the  transfer  of  stock  of  the  various 
corporations  to  the  Standard  Oil  Company  of  New  Jersey 
be  held  illegal  and  the  latter  company  be  enjoined  from 
exerting  control  over  the  subsidiary  corporations  in  any 
manner,  and  (3)  that  specific  relief  by  injunction  be  award- 
ed against  further  violations  of  the  statute  by  any  of  the 
acts  specifically  complained  of  in  the  bill.  The  acts  speci- 
fically charged  were  grouped  under  the  following  heads  by 
the  Supreme  Court: 

"Rebates,  preferences  and  other  discriminatory  prac- 
tices in  favor  of  the  combination  by  railroad  companies; 
restraint  and  monopolization  of  control  of  pipe  lines,  and 
unfair  practices  against  competing  pipe  lines;  contracts 
with  competitors  in  restraint  of  trade ;  unfair  methods  of 
competition,  such  as  local  price  cutting  at  the  points  where 
necessary  to  suppress  competition ;  espionage  of  the  business 
of  competitors,  the  operation  of  bogus  independent  com- 
panies, and  payment  of  rebates  on  oil,  with  the  like  intent ; 
the  division  of  the  United  States  into  districts  and  the 
limiting  of  the  operations  of  the  various  subsidiary  corpo- 
rations as  to  such  districts  so  that  competition  in  the  sale  of 
petroleum  products  between  such  corporations  had  been 
entirely  eliminated  and  destroyed;  and  finally  reference 
was  made  to  what  was  alleged  to  be  the  "enormous  and 
unreasonable  profits"  earned  by  the  Standard  Oil  Trust  and 
the  Standard  Oil  Company  as  a  result  of  the  alleged  monop- 
oly; which  presumably  was  averred  as  a  means  of  reflexly 
inferring  the  scope  and  power  acquired  by  the  alleged  com- 
bination." 105 

In  considering  the  remedy  to  be  administered  the  Chief 
Justice  explained  that  it  must  seek  two  things.  1st,  to  for- 
bid the  doing  in  the  future  of  acts  like  those  which  we  have 
found  to  have  been  done  in  the  past  which  would  be  violative 
of  the  statute.  2nd,  exertion  of  such  measure  of  relief  as 

104  221  U.S.  43. 

105  221  U.  S.  43-4. 


92  Trust  Dissolution 

will  effectually  dissolve  the  combination  found  to  exist  in 
violation  of  the  statute,  and  thus  neutralize  the  extension 
and  continually  operating  force  which  the  possession  of  the 
power  unlawfully  obtained  has  brought  and  will  continue  to 
bring  about.106  The  court  referred  to  the  need  of  adapting 
the  law  and  the  decisions  to  the  changing  conduct  of  com- 
binations according  to  the  rule  of  reason  in  order  that  the 
purpose  of  the  law  might  be  realized.107  It  said  in  reviewing 
the  past  trust  suits  that  modern  conditions  were  followed  by 
new  manifestations  of  conduct  and  dealing  on  the  part  of 
combinations  which  it  was  the  purpose  of  the  act  to  prevent. 
No  arbitrary  or  absolute  standards  were  to  be  followed  and 
only  contracts  and  combinations  amounting  to  unreasonable 
or  undue  restraints  of  trade  were  held  to  be  unlawful. 

The  Supreme  Court  affirmed  the  decree  of  the  Circuit 
Court  which  declared  the  holding  company  to  be  illegal.  The 
decree  commanded  the  dissolution  of  the  combination.  It 
permitted  the  New  Jersey  Company  to  distribute  pro  rata 
to  its  stockholders  all  the  stocks  of  the  companies  in  the 
combination  which  were  held  by  it.  The  company  was  en- 
joined from  paying  or  receiving  any  dividends  on  the  stocks 
held  by  it  and  from  exercising  any  control  over  them  ex- 
cept to  transfer  them.  After  the  transfer  was  made  the 
holders  of  the  stocks  in  the  subsidiary  companies  and  the 
companies  themselves  were  enjoined  from  in  any  way  con- 
spiring or  combining  to  violate  the  act,  either  by  acquiring 
stock  interests  in  potentially  competitive  companies,  or  by 
placing  the  control  of  any  of  the  corporations  under  a 
trustee,  or  by  making  any  agreement,  implied  or  expressed, 
as  to  the  management  of  other  corporations,  or  to  regulate 
prices,  sales,  rates  of  transportation,  or  output.108  Six 
months  were  allowed  to  carry  out  the  dissolution  plan. 

In  compliance  with  the  decree  of  the  Supreme  Court, 
the  Standard  Oil  Company  of  New  Jersey  sent  a  letter  to 
its  stockholders  on  July  28,  1911,  announcing  that: 

"Obedience  to  the  final  Decree  of  the  Case  of  the  United 


108  221  U.  S.  78. 

107  221  U.  S.  57. 

108  173  Fed.  Rep.  200. 


The  Dissolution  of  the  Standard  Oil  Company       93 

States  against  the  Standard  Oil  Company  (of  New  Jersey), 
and  others,  requires  this  Company  to  distribute,  or  cause 
to  be  distributed,  ratably,  to  its  stockholders  the  shares 
of  stock  of  the  following  corporations,  which  it  owns  direct- 
ly or  through  its  ownership  of  stock  of  the  National  Transit 
Company,  to-wit:  (Thirty-three  corporations  named)." 

"Such  distribution  will  be  made  to  the  stockholders  of 
the  Standard  Oil  Company  of  record  on  the  1st  day  of 
September,  1911."109 

In  this  dissolution  each  of  the  983,833  shares  of  stock 
in  the  Standard  Oil  Company,  in  addition  to  retaining  one 
share  in  the  present  Standard  Oil  Company  of  New  Jersey, 
received  0  a .  *  , ,  of  the  shares  of  stock  in  each  of  the  33 

9   O  O  t  O  O  O 

subsidiary  companies  among  which  the  Standard  interests 
were  distributed.  The  capitalization  of  the  Standard  Oil 
Company  of  New  Jersey  remained  as  before  at  $98,338,300. 

From  the  first  there  has  been  much  question  as  to  the 
effectiveness  of  the  dissolution.  Had  it  resulted  in  restoring 
competition,  or  had  the  Standard  Oil  combination,  after  its 
long,  profitable  career  and  flight  from  one  defense  to  another 
through  pool,  trustee  device,  dissolution  of  1892,  holding 
company,  and  dissolution  of  1911,  at  last  reached  a  secure 
position  amounting  to  legalized  monopoly? 

President  Taft,  who  announced  that  the  plan  of  the 
administration  in  prosecuting  the  trusts  was  to  secure  a 
decree  of  disintegration  by  which  competition  between  its 
parts  shall  be  restored  and  preserved,  referred  to  the  Stand- 
ard Oil  and  Tobacco  decisions  as  epoch-making.110  Frank 
B.  Kellogg  declared  this  "decree  accomplished  everything 
that  it  is  possible  to  accomplish  under  the  Sherman  Act. 
*  *  *  The  decree  went  further  than  any  decree  has  ever 
done  in  any  court."  in  Mr.  Bryan  says  we  have  seen  one 
result  of  this  decision,  i.  e.,  rejoicing  on  the  part  of  every 
man  pecuniarily  interested  in  the  corporations  which  are 
exploiting  the  public.112  There  are  others  who  feel  that 
because  of  the  scattering  of  the  oil  interests  and  the  scrutiny 

109  Stevens,  Industrial  Combinations  and  Trusts,  p.  462. 

110  Message  to  Congress,  Dec.  5,  1911. 

111  American  Review  of  Reviews,  V.  45,  p.  728. 
Ma  North  American  Review,  V.  194,  p.  10. 


94  Trust  Dissolution 

of  the  Government  the  chief  grievances  of  the  past  can  no 
longer  be  practiced,  especially  since  these  were  enumerated 
and  publicly  exposed. 

Most  economists  in  discussing  the  dissolution  have  ex- 
pressed the  belief  that  competition  would  not  be  restored 
with  the  passing  of  the  holding  company,  and  that  there 
would  be  no  break  in  the  coordinate  activities  of  the  separ- 
ate corporations.  John  Bates  Clark  says  "we  have  dissolved 
the  form  of  the  combination  known  as  a  'holding  company' 
to  substitute  the  form  of  combination  known  as  a  'com- 
munity of  interest.5  We  have  forbidden  the  usual  methods 
of  unified  action,  while  leaving  the  motive  for  it  as  strong 
as  before  and  a  way  to  secure  it  open.  The  original  owner 
of  an  independent  refinery,  after  selling  out  to  the  Standard 
for  stock,  became,  of  course,  a  minority  holder  of  insignifi- 
cant importance  in  the  larger  company.  After  the  dissolu- 
tion, far  from  getting  his  own  plant  back,  he  became  an 
insignificant  minority  holder  in  the  corporation  which  con- 
trols it,  as  well  as  in  many  others  in  which  he  has  no  personal 
interests.  He  is  a  stranger  in  his  own  house  without  even 
a  strong  enough  foothold  on  which  to  base  an  effective  pro- 
test."113 Jeremiah  Jenks  asserts  that  the  dividends  and 
prices  of  the  stock  of  the  various  Standard  Oil  companies 
since  the  decision  seem  to  justify  the  conclusion  that  al- 
though there  has  been  a  reorganization  in  form,  the  inter- 
ests still  remain  in  combination.11 

The  plan  of  dissolution  was  strikingly  similar  to  the 
earlier  dissolution  of  the  Standard  in  1892.  At  that  time 
the  Standard  interests  had  experience  witK  a  pro  rata  plan 
of  dissolution  and  they  must  have  welcomed  this  plan  when 
it  was  suggested  by  the  court  as  the  remedy.  It  is  difficult 
to  conceive  of  a  milder  form  of  dissolution.  In  the  first 
dissolution  each  trust  certificate  entitled  the  holder  to  a 
fractional  ownership  in  each  of  the  companies  controlled 
by  the  Standard  interests  at  that  time.  In  the  present 
dissolution  each  share  of  stock  in  the  Standard  Oil  Company 
which  had  been  received  in  exchange  for  the  trust  certifi- 

118  The  Control  of  Trusts,  pp.  146-7. 
114  Jour.  Pol.  Econ.,  V.  20,  p.  355. 


The  Dissolution  of  the  Standard  Oil  Compwny       95 

cate,  share  for  share,  entitled  the  holder  to  a  fractional 
ownership  in  each  of  the  companies  controlled  by  the  Stand- 
ard interests  nineteen  years  later.  This  did  not  lessen  the 
control  of  the  dominant  shareholders.  The  same  little 
group  which  owned  a  majority  of  the  stockHbefore  the  dis- 
solution, afterwards  owned  a  like  majority  in  each  of  the 
33  companies.  In  fact,  the  control  of  the  dominant  share- 
holders was  rather  increased  since  the  small  shareholders, 
because  of  their  small  and  scattered  interests  and  fractional 
shares,  had  relatively  less  control  than  before.  They  could 
elect  the  directors  in  the  33  companies,  for  the  decree  did 
not  enjoin  them  from  so  doing.  With  such  a  plan  of  dis- 
solution the  further  injunctions  of  the  court  obviously 
could  not  be  expected  to  restore  competition  among  the 
various  companies  which  had  worked  together  in  such  unison 
and  prosperity  for  so  many  years.  No  attempt  was  made 
to  break  up  the  united  pipe  line  control.  Had  the  dissolu- 
tion provided  for  some  division  of  the  pipe  lines,  refineries, 
and  other  oil  interests  between  exclusive  sets  of  stjpck- 
holders  together  with  certain  restraining  injunctions,  the 
dissolution  might  have  been  effective. 

Fear  that  a  "Community  of  Interest"  existed  between 
the  subsidiary  companies  was  revived  in  191J2  when  the 
Waters-Pierce  Oil  Company  refused  to  count  the  majority 
votes  of  the  Company  that  had  been  cast  at  the  instance  of 
the  Standard  Oil  interests  for  the  election  of  directors.115 
This  refusal  was  based  upon  the  ground  that  the  shares 
were  being  illegally  voted  in  furtherance  of  a  conspiracy  to 
violate  and  evade  the  decree  of  dissolution.  Upon  the  refus- 
al to  count  these  votes  the  proxies  named  by  the  Standard 
Oil  interests  brought  proceedings.  Had  the  votes  been 
counted,  the  election  would  have  given  the  control  of  the 
Waters-Pierce  Company  into  the  hands  of  the  Standard  Oil 
of  Indiana  and  its  majority  shareholders. 

The   respondents   for   the  defense   in   this   suit   claimed 
that    the   decree   against   the    Standard   Oil   had    not   been 
complied  with  in  any  substantial  respect,  and  that  the  indi- 
vidual  defendants   in   that   suit   still   controlled   all   of  the 
"'Stevens,  Industrial  Combinations  and  Trusts,  pp.  516-524. 


96  Trust  Dissolution 

subsidiary  companies,  including  the  Waters-Pierce  Com- 
pany, through  concerted  action  in  their  ownership  of  stock 
of  the  Standard  Oil  of  Indiana  and  other  subsidiary  com- 
panies.116 They  further  charged  that  the  dissolution  was 
"a  farce,  a  disguise  and  a  pretext,  and  had  made  no  change 
whatsoever  in  the  relation  of  the  companies  or  their  direc- 
tion, management  and  control."117  In  the  opening  legal 
skirmish  of  the  Waters-Pierce  suit,  the  court,  by  a  tempo- 
rary injuction,  forbade  Mr.  Rockefeller  and  others  to  vote 
their  stocks  for  the  directors  of  their  choice. 

Apparently  good  results  followed  the  above  litigation 
for  in  the  following  year  the  Waters-Pierce  Oil  Company 
was  succeeded  by  the  Pierce  Oil  Corporation.  Before  this 
occurred,  the  Pierce  interests  obtained  from  the  Standard 
interests  the  stock  control  and  management.  The  new  cor- 
poration issued  $10,500,000  of  stock  and  $8,000,000  of 
bonds.  Each  holder  in  the  $400,000  of  stock  of  the  Waters- 
Pierce  Oil  Company  received  $1,250  in  cash  and  $2,625  in 
stock  of  the  new  corporation  for  each  share  held  in  the 
former.118  The  importance  of  this  company  was  largely  due 
to  its  vast  marketing  system  and  facilities  established 
throughout  the  Southern  states  and  Mexico.  In  1916  it 
has  1,122  main  distributing  stations  serving  17,273  cities 
and  towns.119  The  corporation  is  also  engaged  in  producing, 
transporting  and  refining. 

Evidently  the  "Street"  did  not  take  the  Standard  Oil 
decision  seriously.  When  the  case  was  in  the  courts,  the 
stock  gradually  declined  and  reached  a  low  level  of  $585. 
After  the  decision  was  rendered  which  finally  dissolved  the 
company,  Standard  Oil  stock  again  rose  until  $900  was 
reached,  more  than  $300  higher  than  when  the  company 
was  under  attack.  Apparently  the  men,  who  knew  best, 
did  not  believe  that  the  dissolution  would  reduce  the  great 
profits  which  the  Standard  had  enjoyed  and  which  would 
now  go  to  the  constituent  companies.  From  December  18, 
1911,  to  March  12,  1912,  the  value  of  the  shares  of  most 

ua  Stevens,  Industrial  Combinations  and  Trusts,  p.  627. 
11TIbid. 

118  Moody's  Manual,  1916,  p.  3510. 

119  Ibid.,  p.  3510. 


.\  ^ 

The  Dissolution  of  the  Standard  OH  Company       97 

of  the  subsidiary  companies  advanced  greatly.  A  number 
of  the  stocks  doubled  in  value,  while  the  stock  of  one  com- 
pany trebled.120 

To  the  many  charges  that  the  Standard  Oil  stocks  ad- 
vanced because  of  some  defect  in  the  Government's  decree, 
Frank  B.  Kellogg  replied  that  the  reason  "is  perfectly  plain 
to  those  familiar  with  the  Standard  Oil  organization.  Prior 
to  the  Government  prosecution,  the  Standard  Oil  Company 
was  a  close  corporation.  It  never  published  any  statement 
of  its  assets  and  business  even  to  its  stockholders.  All  the 
public  knew  was  that  the  Standard  Oil  Company  stock  paid 
a  dividend  of  about  40  percent  per  annum,  and  its  market 
value  was  regulated  by  these  dividends.  Its  earnings  were 
double  this  sum,  but  only  a  few  insiders  knew  that  fact. 
*  Until  the  dissolution,  in  December,  1911,  the  stocks 
of  the  thirty-seven  subsidiary  corporations  had  never  been 
sold  on  the  market.  They  were  in  the  treasury  of  the  Stand- 
ard Oil  Company  of  New  Jersey,  the  holding  company.  The 
Government,  in  the  course  of  the  trial,  for  the  first  time 
disclosed  the  large  assets  and  earnings  of  these  various  com- 
panies, collectively  and  individually.  But  the  reports  of 
the  trial  were  not,  of  course,  generally  distributed,  and  only 
gradually  did  the  facts  filter  through  the  minds  of  the  invest- 
ing public.  Moreover,  so  long  as  the  suit  was  pending  the 
stocks  of  the  parent  company  naturally  sold  for  much  less 
in  the  market  by  reason  of  the  uncertainty  as  to  the  out- 
come of  the  suit.  When  the  Standard  Oil  Company  was 
dissolved  and  these  subsidiary  companies  stood  upon  their 
own  foundations,  and  as  their  stocks  began  to  be  dealt  in 
upon  the  market,  gradually  the  amount  of  their  assets 
became  known  and  the  stocks  increased  enormously  in 
value."121  No  doubt  this  explanation  points  out  one  of 
the  factors  in  bringing  about  the  immediate  stock  value 
advances  of  the  subsidiary  companies,  but  it  does  not  ex- 
plain the  effect  on  the  stock  value  of  the  New  Jersey  Com- 
pany following  the  anouncement  of  the  kind  of  dissolution 
finally  required,  nor  does  it  explain  why  the  value  of  these 

120  Lit.  Digest,  V.  44,  p.  665. 

131  American  Review  of  Reviews,  V.  45,  pp.  729-30. 


98  Trust  Dissolution 

stocks  has  continued  to  rise  rapidly  ever  since,  regardless 
of  increased  cash  dividends  and  periods  of  general  stock 
depression.  The  original  Standard  Oil  stocks,  including 
cash  dividends  paid,  more  than  doubled  in  value  in  the  first 
two  years  following  the  dissolution.  There  was,  according 
to  the  Wall  Street  Journal,  "a  total  profit  in  Standard  Oil 
shares  since  the  dissolution  (two  years)  of  at  least  115 
percent.  On  December  15,  1911,  Standard  Oil  stock,  which 
included  the  New  Jersey  Company  and  all  subsidiaries,  sold 
at  $640  a  share  while  to-day  these  shares  are  quoted  around 
$1,230,  an  increase  of  $590  a  share,  or  over  90  percent. 
Cash  dividends  paid  by  the  Standard  Oil  Companies  during 
the  past  two  years  have  aggregated  more  than  $160,000,- 
000,  equivalent  to  over  160  percent  on  the  capital  stock 
*  *  *,  and  equivalent  to  over  25  percent  on  the  investment 
in  the  old  shares  at  $640.  *  *  *  A  review  of  the  thirty- 
four  companies  included  in  the  Standard  Oil  group  for  1913, 
the  second  year  of  restored  competition  between  these  com- 
panies under  the  watchful  eye  of  the  Washington  Govern- 
ment, discloses  a  state  of  prosperity  probably  unequaled 
by  any  other  group  of  companies  in  the  United  States."122 

The  largest  single  cash  dividend  came  in  1913  when  the 
Standard  Oil  Company  of  New  Jersey  declared  an  extra 
40  percent  stating  that  the  funds  were  received  from  the 
liquidation  of  loans  to  former  subsidiary  companies  in  ob- 
servance of  the  spirit  of  the  courts'  decree.123  When  the 
shares  of  a  company  dominating  this  extensive  industry, 
following  a  dissolution  of  the  company,  receive  over  160 
percent  in  cash  dividends  in  two  years  and  at  the  same  time 
nearly  double  in  market  value,  it  would  indicate  that  the 
control  had  not  been  lost  or  even  badly  jeopardized. 

The  large  dividends  and  the  appreciation  in  stock  values 
which  is  shown  above  for  the  years  1912-13  continued  with- 
out abatement  during  the  next  three  years.  The  33  com- 
panies declared  larger  cash  and  stock  dividends.  Two  new 
companies  were  organized  by  the  Standard  group  and  the 
capital  stock  distributed  as  stock  dividends.  Both  were 

"'Literary  Digest,  V.  48,  pp.  740-2. 
1MMoody's  Manual,  1916,  p.  3523. 


The  Dissolution  of  the  Standard  Oil  Company       99 

pipe  line  companies  organized  to  take  over  and  consolidate 
pipe  line  transportation.124  The  first  was  the  Illinois  Pipe 
Line  Company,  organized  in  1914,  which  exchanged  its 
$20,000,000  of  stock  for  the  pipe  line  property  of  the  Ohio 
Oil  Company.  The  other  was  the  Prairie  Pipe  Line  Com- 
pany, organized  in  1915.  The  latter  exchanged  its  $27,- 
000,000  of  capital  for  the  transportation  business  and 
equipment  of  the  Prairie  Oil  and  Gas  Company. 

The  market  value  of  the  old  Standard  Oil  stock  with 
its  claim  to  fractional  parts  of  the  33  companies  increased 
from  $640  at  the  time  of  dissolution  to  over  $2,000  in  1916 
in  spite  of  increased  cash  and  stock  dividends.  Few  shares 
in  this  form  appear  on  the  market  to-day.  The  table  on 
page  100  gives  the  names  of  the  33  companies,  together  with 
the  two  new  ones  organized ;  the  face  value  of  each  of  the 
983,383  shares  in  these  companies  at  the  time  of  dissolu- 
tion ;  and  the  market  value  of  such  fractional  shares  based 
upon  the  stock  quotations  on  October  9,  1916. 125 

Thus  the  market  value  of  the  equities  represented  by  each 
of  the  983,383  shares,  which  prior  to  the  dissolution  never 
exceeded  $750  and  at  the  time  of  dissolution  was  $640,  rose 
rapidly  to  more  than  $2,000,  or  more  than  trebled  in  less 
than  five  years,  and  represented  on  this  basis  in  the  aggre- 
gate a  market  worth  of  nearly  $2,000,000,000. 

The  rapid  advance  in  the  price  of  gasoline,  accompanied 
by  a  decline  in  the  quality,  in  1915,  led  Congress  to  request 
an  extended  investigation  of  the  petroleum  industry  by  the 
Federal  Trade  Commission.128  The  demand  for  gasoline 
increased  more  than  200  percent  during  the  five  years  prior 
to  1916,  according  to  Van  H.  Manning,  Director  of  the 
United  States  Bureau  of  Mines,  and  it  increased  38  percent 
in  1915  according  to  the  Commission.127  The  increasing 
use  of  gasoline  made  it  the  most  important  petroleum  prod- 
uct although  it  constituted  only  about  25  percent  of  such 
products.  In  the  face  of  the  increasing  demand  the 
production  of  crude  oil  remained  about  the  same  in  1915 

124Moody's  Manual,  1916,  pp.  3505,  3514. 

125  Ibid.,   1912,  p.  3602. 

"•  Report  on  the  Price  of  Gasoline  in  1915,  1917. 

127  Ibid.,  p.  31. 


100  Trust  Dissolution 


Face  Value  of 

Market 

Fractional 

Value  of 

Share  at  Time 

Same  on 

Name  of  Company 

of  Dissolution 

Oct.  9,  1916 

Anglo-American  Oil  

$4.86 

$32.00 

Atlantic  Refining  

5.08 

42.20 

Borne-Scrymser  

20 

.81 

Buckeye  Pipe  Line  

10.17 

21.15 

Cheseborough  Manufacturing.  .  . 

28 

3.93 

Colonial  Oil  

25 

.15 

Continental  Oil  

30 

15.68 

Crescent  Pipe  Line  

3.05 

2.62 

Cumberland  Pipe  Line  

1.02 

.95 

Eurela  Pipe  Line  

5.08 

11.69 

Galena  Signal  Oil  

5.69 

11.24 

Galena  Signal  Oil  (preferred)  .  . 

1.72 

2.39 

Indiana  Pipe  Line  

5.08 

10.57 

National  Transit  

12.94 

8.28 

New  York  Transit  

5.08 

10.67 

Northern  Pipe  Line  

4.07 

4.19 

Ohio  Oil  

15.25 

179.99 

Prairie  Oil  and  Gas  

18.30 

79.43 

Solar  Refining  

51 

6.70 

Southern  Pipe  Line  

10.17 

21.86 

Southern  Penn.  Oil  

2.54 

51.40 

South  West  Penn.  Pipe  Line  .  .  . 

3.56 

4.06 

Standard  Oil  of  California  

25.42 

260.48 

Standard  Oil  of  Indiana  

1.02 

242.28 

Standard  Oil  of  Kansas  

1.02 

10.26 

Standard  Oil  of  Kentucky  

1.01 

15.21 

Standard  Oil  of  Nebraska  

61 

5.13 

Standard  Oil  of  New  York  

15.25 

173.16 

Standard  Oil  of  Ohio  

3.56 

29.89 

Swan  &  Finch  

10 

1.16 

Union  Tank  Line  

12.20 

11.10 

Vacuum  Oil  ;  

2.54 

45.14 

Washington  Oil  

.07 

.33 

Waters-Pierce  Oil  

28 

6.76 

Illinois  Pipe  Line  

40.27 

Prairie  Pipe  Line  

80.98 

$1 

,447.07 

Standard  Oil  of  New  Jersey 

567.00 

5,014.07 


The  Dissolution  of  the  Staiidar'l  Oil'  Comprwity     101 


and  1916,  while  the  production  of  crude  oil  having  the 
highest  percentage  of  refined  products,  particularly  that 
of  the  Mid-Continent  field  which  produced  75  percent  of 
the  refinable  oil,  decreased.  This  resulted  in  a  decrease  of 
the  gasoline  content  in  the  crude  oil  produced  in  1915.  The 
Commission  estimated  the  gasoline  content  of  the  oil  pro- 
duced in  this  year  to  be  2,059,000,000  gallons.128  In  this 
year  the  production  of  gasoline  products  was  1,548,799,000 
gallons.129  Of  this  amount  the  Standard  Oil  group  pro- 
duced over  60  percent  and  sold  about  65  percent.13  These 
figures  are  very  conservative  since  the  Standard  group  had 
a  large  stock  control  in  several  of  the  chief  outside  com- 
panies. During  the  year,  especially  after  July,  the  crude  oil 
stocks  held  by  the  refineries  greatly  increased,  thereby  caus- 
ing a  scarcity  of  oil  on  the  market.  The  Standard  group, 
which  held  from  71  to  81  percent  of  the  stock  of  crude  oil, 
increased  their  supply  more  rapidly  than  the  others.131  This 
action  caused  a  decline  in  the  stocks  of  gasoline  held  by  the 
refiners.  The  sales  of  gasoline  in  this  year  were  1,849,- 
790,000  gallons,  or  about  39  percent  greater  than  in  1914, 
and  60  percent  greater  than  in  1913.132  There  was  an  in- 
crease of  over  50  percent  in  the  exports  of  gasoline  prod- 
ucts. From  the  previous  high  record  of  209,546,000  gal- 
lons in  1914,  they  rose  to  315,400,000  in  1915,  or  about 
20  percent  of  the  total  production.183  Of  the  total  exports 
for  the  year  the  Standard  group  had  83  percent.184 

In  the  sale  of  gasoline  the  Standard  companies  con- 
tinued a  division  of  territory  including  the  whole  country, 
and  their  marketing  companies  had  distinct  selling  terri- 
tories which  were  arbitrarily  defined.135  Little,  if  any,  com- 
petition existed  among  them  in  the  sale  of  gasoline.  The 
inequalities  in  prices  between  marketing  companies  ranged 

128  Report  on  the  Price  of  Gasoline  in  1915,  p.  41. 

129  Ibid.,  p.  2. 

130  Ibid.,  p.  9. 

131  Ibid.,  p.  3. 

132  Ibid.,  p.  31. 
138  Ibid.,  p.  4. 
134  Ibid.,  p.  33. 

185  Ibid.,  pp.  143-158. 


102  .Trust  Dissolution 

from  2  to  8  cents  per  gallon.136  According  to  the  Commis- 
sion these  inequalities  could  only  be  explained  by  the  ab- 
sence of  competition  among  the  marketing  companies. 
Large  shipments  were  made  between  the  companies  but  the 
oil  was  not  sold  in  competition.  The  absence  of  competition 
was  attributed  to  the  community  of  stock  ownership  result- 
ing from  the  plan  of  dissolution  ordered  by  the  court  in 
1911. 

The  increase  in  gasoline  prices  in  1915  was  much  greater 
than  was  warranted  by  the  costs  of  production.137  The 
wider  margin  of  profit  was  reflected  in  the  earnings  and  in 
the  sharp  advances  in  stock  values.  The  Commission  de- 
clared that  the  advance  could  be  only  partly  attributed  to 
the  decrease  in  the  supply  of  light  crude  oils  and  to  the  in- 
creasing foreign  and  domestic  demand.138  Part  of  the  ad- 
vance was  caused  by  buying  up  large  stocks  of  crude  oil 
which  were  withheld  from  the  market  and  by  arbitrarily  and 
unequally  advancing  the  price  of  gasoline  in  the  different 
sections  corresponding  to  the  Standard's  marketing  dis- 
tricts. The  Commission  believed  that  the  absence  of  com- 
petition among  the  Standard  companies  was  an  "apprecia- 
ble" factor  in  bringing  about  the  price  advance  in  1915. 

Another  report  of  the  Federal  Trade  Commission  shows 
conclusively  that  the  Standard  Oil  interests  have  maintained 
a  monopoly  control  and  use  of  the  pipe  line  transporta- 
tion.139 Although  the  Hepburn  law  of  1906  required  pipe 
lines  to  act  as  common  carriers  and  conform  to  the  Act  of 
1887  as  to  reasonable  rates,  discrimination,  filing  of  rates 
and  the  supervision  of  the  Interstate  Commerce  Commission, 
they  have  not  served  as  common  carriers  because  of  unrea- 
sonable rates,  excessive  minimum  shipping  requirements  and 
refusal  to  transport  oil  for  others.  It  was  not  until  1914 
that  the  validity  of  the  law  was  settled.  After  this  year  all 
the  pipe  lines  filed  tariffs,  but  up  to  the  present  time  the 

136  Report  on  the  Price  of  Gasoline  in  1915,  pp.  6-7. 

137  Ibid.,  p.  159. 
128  Ibid.,  p.  16. 

189  Letter  of  Submittal  and  Summary  and  Conclusions  of  the  Report 
of  Federal  Trade  Commission  on  Pipe-line  Transportation  of  Petroleum, 
1916. 


The  Dissolution  of  the  Standard  Oil  Company     103 

Interstate  Commerce  Commission  has  not  determined  what 
are  reasonable  rates  and  requirements. 

The  report  of  the  Trade  Commission  covered  pipe  line 
transportation  in  the  Mid-Continent  field.  This  field,  whose 
crude  oil  had  the  highest  percentage  of  refined  products,  had 
become  by  far  the  most  important  oil  field,  with  a  production 
of  about  98,000,000  barrels  or  about  37  percent  of  the  total 
production  in  1914.140  If  the  lower  grade  oil  of  California 
were  excluded  the  production  of  the  field  would  be  60  per- 
cent of  the  total.  In  the  same  year,  30,614,764  barrels, 
an  amount  equal  to  about  60  percent  of  the  total  production 
east  of  the  Mississippi,  were  piped  from  this  field  to  points 
east  of  the  Mississippi  and  thus  came  into  competition  with 
the  oil  produced  east  of  this  river.  But  practically  all  of 
the  oil  belonged  to  the  Standard  interests  and  was  piped 
over  their  own  pipe  line,  the  only  pipe  line  connecting  the 
Mid-Continent  field  with  the  eastern  refineries.  This  trunk 
line  had  three  to  five  pipes  most  of  the  way  and  connected 
with  other  Standard  lines  at  Griffith,  Indiana,  near  Chicago. 
It  had  the  largest  capacity,  the  fullest  use  of  its  capacity 
and  the  lowest  costs  of  any  line  operating  in  the  field.  This 
favorable  situation  was  largely  due  to  the  fact  that  it  was 
the  only  line  running  to  points  east  of  the  Mississippi.  Prior 
to  1914  the  line  refused  to  transport  oil  for  others  and  filed 
no  tariff.  Following  the  ruling  of  the  court  it  then  filed  a 
tariff  containing  excessive  rates  and  placing  the  minimum 
shipment  at  100,000  barrels  without  even  agreeing  to  driver 
the  same  oil  shipped  but  merely  the  same  quantity  minus  a 
small  percentage  for  loss  in  transit. 

Moreover,  there  was  no  opportunity  for  independents  to 
compete  with  the  Standard  by  rail  shipments  to  eastern 
points.  The  rail  rates  to  seaboard  points  were  100  percent 
higher  than  the  pipe  line  rates,  being  $1.40  per  barrel  for 
the  former  and  70  cents  for  the  latter.141  The  transporta- 
tion cost  is  a  vital  factor  in  the  oil  business.  During  1915 
the  pipe-line  charge  from  this  field  to  the  seaboard  points 
was  from  58  to  175  percent  of  the  price  of  crude  oil  at  the 

140  Letter  of  Submittal  and  Summary  and  Conclusions  of  the  Report 
of  the  Federal  Trade  Commission  on  Pipe-line  Transportation  of  Petro- 
leum, 1916,  p.  5. 

141  Op.  Cit,  p.  23. 


104  Trust  Dissolution 

wells.  If  rail  rates  were  used  these  percentages  would  be 
doubled.  The  Standard's  advantage  in  pipe  line  control  was 
sufficient  in  itself  to  maintain  a  large  degree  of  monopoly 
in  the  oil  industry.  The  independents  did  not  attempt  to 
build  a  line  to  the  east  because  the  Standard  interests  owned 
all  the  connecting  trunk  lines  between  the  Mississippi  and 
the  Appalachians  and  the  independent  refineries  in  the  region 
were  small  and  scattered.  The  prohibition  costs  and  the 
severe  and  unfair  competition  which  was  almost  sure  to 
follow  prevented  the  small  companies  from  building  lines  to 
the  large  consuming  and  distributing  markets.  Thus  the 
oil  piped  by  the  Standard  to  eastern  points — an  amount 
equal  to  about  60  percent  of  the  total  production  east  of 
the  Mississippi — did  not  come  into  competition  with  other 
oil  from  the  Mid-Continent  field. 

In  addition  to  the  one  described  above  there  were  four 
other  large  pipe  line  systems  operated  in  this  field,  having 
their  outlets  at  Gulf  points.  Of  the  four  systems  the  Stand- 
ard group  owned  one  and  the  Standard  capitalists  controlled 
a  second.  Thus  the  Standard  had  outlets  from  the  field  both 
to  the  east  and  the  Gulf.  None  of  the  four  systems  acted 
as  common  carriers,  and  with  few  exceptions  they  trans- 
ported their  own  crude  oil  for  their  own  or  affiliated  refin- 
eries. Their  rates  and  shipment  requirements  prevented  the 
small  concerns  from  competing  with  the  larger  refineries  af- 
filiated with  pipe  line  companies.  They  supplied  the  refineries 
in  Missouri,  Kansas,  Oklahoma,  Texas,  and  Louisiana  and 
delivered  large  quantities  for  the  export  trade.  Two  of  the 
lines  passed  through  the  Texas  field  which  produced  13,117,- 
528  barrels  in  1914.  Only  about  3,500,000  to  6,000,000 
barrels  were  shipped  by  water  from  the  Gulf  to  the  North 
Atlantic  refineries  from  1913  to  1915.  Of  this  amount  the 
Standard  handled  large  quantities,  but  the  proportion  is  not 
known. 

As  already  noted  there  were  wide  margins  between  the 
pipe  line  rates  and  cost  of  pipe  line  transportation.  The 
trunk  line  rates  from  this  field  were  from  one  to  six  times 
the  cost  of  transportation  including  six  percent  on  the  in- 
vestment.14 For  all  five  pipe  line  systems  the  average  net 
142  Op.  Cit.,  p.  19. 


The  Dissolution  of  the  Standard  Oil  Company     105 

investment  for  the  three  years  1911-1913  was  $38,522,728 
and  the  average  net  earnings  based  upon  the  tariff  rates 
would  be  44.4  percent.143  The  large  trunk  line  of  the 
Standard  running  to  Griffith,  Indiana,  whose  net  investment 
averaged  over  $31,000,000,  would  have  received  on  the  same 
basis  an  average  return  of  68.8  percent.144 

The  Trade  Commission  concludes  that  the  small  refiners 
who  are  wholly  dependent  upon  rail  rates  cannot  compete 
with  those  controlling  their  own  pipe  lines,  or  even  with  those 
who  can  secure  pipe  line  service  at  the  existing  pipe  line 
rates.145  As  a  result  the  small  refiners  are  usually  located 
near  the  oil  regions,  while  the  refiners  using  pipe  lines  are 
able  to  locate  their  refineries  near  the  large  consuming  and 
distributing  centers,  thus  securing  an  additional  advantage 
over  their  weaker  rivals.  The  transportation  of  refined  oil 
through  pipe  lines  is  unusual.  The  small  refiner  in  the  oil 
region  cannot  effectively  compete  in  the  sale  of  his  product 
in  the  chief  markets.  Reasonable  rates  and  equitable  ship- 
ping conditions  on  the  part  of  pipe  lines  would  enable  small 
producers  and  refiners  to  transport  oil  not  only  from  the 
Mid-Continent  field,  but  from  the  other  fields,  and  would  re- 
store general  competition  throughout  the  country  both  in 
the  sale  of  crude  oil  and  its  refined  products. 

The  Trade  Commission,  as  did  the  Bureau  of  Corpora- 
tions, considered  the  practicability  of  requiring  pipe  lines 
to  serve  as  common  carriers.  Both  agree  that  it  is  practi- 
cable and  that  every  principle  of  justice  demands  it.  More 
recently  the  Bureau  had  occasion  to  investigate  the  working 
of  the  Oklahoma  pipe-line  law  which  requires  that  pipe  line 
companies  must  either  purchase  all  the  current  output  of 
each  producer  or  take  such  proportion  of  his  output  as 
his  production  bears  to  the  total  production.  The  pipe  line 
is  allowed  thirty  days  in  which  to  correct  inequalities.  The 
law  had  not  been  in  operation  long  enough  to  arrive  at 
definite  conclusions.  No  plan  will  be  equitable  to  the  public 
and  to  the  refiners  and  producers  not  having  their  own  pipe 
lines  unless  it  provides  for  reasonable  rates. 

The  report  of  the  Trade  Commission  plainly  shows  the 

148  Op.  Cit.,  pp.  17-18. 

144  Op.  Cit.,  pp.  17-18.        14B  Op.  Cit.,  pp.  26-7. 


106  Trust  Dissolution 

monopoly  control  of  the  Standard  group  in  the  Mid-Conti- 
nent field  which  is  the  most  important  oil  region.  It  has  also 
been  pointed  out  how  the  Standard  interests  maintained 
control  of  pipe  line  transportation  in  the  eastern  oil  fields, 
the  next  most  important  fields,  following  the  legislation  of 
1906,  by  refusing  to  serve  as  common  carriers.  The  Stan- 
dard group  still  controls  all  the  trunk  lines  between  the  Mis- 
sissipi  and  the  Appalachians  in  which  region  the  independent 
refineries  are  small  and  scattered.  From  a  consideration  of 
the  amount  and  quality  of  oil  produced  in  the  Mid-Conti- 
nent and  eastern  oil  fields,  and  of  the  proportion  of  oil  from 
these  fields  controlled  by  the  Standard  interests  it  would 
appear  that  this  group  has  in  the  great  consuming  sections 
of  the  country  nearly  as  dominant  control  as  it  formerly 
had.  The  chief  bulwark  of  the  oil  monopoly  remains — a  fact 
not  due  to  the  voting  public  which  has  frequently  voted  the 
power  to  end  it.  The  solution  lies  in  removing  the  artificial 
advantages  and  unfair  competition.  There  are  refiners  and 
producers  ready  and  able  to  compete  under  equal  conditions. 
Our  fear  should  be  lest  the  Standard  group  aided  by  its 
unfair  advantages  and  profits  should  succeed  in  increasing 
its  control  over  the  crude  oil  supply  to  such  an  extent  that 
the  mere  removal  of  artificial  advantages  would  not  be  suffi- 
cient. Monopoly  secured  by  direct  control  of  the  raw  ma- 
terials might  be  more  difficult  to  cope  with. 

The  Federal  Trade  Commission  suggested  four  remedies 
for  conditions  in  the  oil  industry.14 

1.  That  the  ownership  of  the  pipe  lines  be  separated  from 
the  other  branches  of  the  industry. 

2.  That   the   Government   publish   statistics    concerning 
the  petroleum  industry,  as  it  does  now  in  several  other  indus- 
tries.    Reliable  knowledge  of  conditions  would  prevent  large 
fluctuations  in  price  by  allowing  an  adjustment  between  sup- 
ply and  demand. 

3.  That  the  Government  classify  gasoline  products  ac- 
cording to  quality,  and  require  that  all  petroleum  products 
sold  as  gasoline  meet  a  certain  test  which  would  make  it  suit- 
able for  combustion  engines. 

4.  That  the  control  through  the  common  ownership  of 
148  Report  on  the  Price  of  Gasoline  in  1915,  pp.  16-18;  158-164. 


The  Dissolution  of  the  Standard  Oil  Company     107 

stock  be  prevented.      To   this   end  five   courses   of  possible 
action  were  suggested. 

(a)  Action  by  the  Department  of  Justice  in  view  of  the 
facts  disclosed  by  the  Commission's  investigation. 

(b)  An   act   of   Congress   providing   for   the   reopening 
of  antitrust  cases  by  a  bill  of  review,  the  action  for  review 
to  be  taken  by  the  Attorney  General  whenever  a  dissolution 
was   found   to   be  ineffective   either  because   of   a   defective 
plan  or  through  changed  conditions. 

(c)  Federal  legislation  prohibiting,  in  certain  cases,  the 
common  ownership  of  stock  in  corporations  which  have  been 
members  of  a  combination  dissolved  under  the  Sherman  law. 

(d)  Placing  an  effective  limitation  upon  common  owner- 
ship  of   stock   in   potentially    competitive    corporations    by 
withdrawing  the  power  of  voting  and  control. 

(e)  Legislation  making  the  owners  of  stock  personally 
responsible  for  the  acts  of  the  companies,  which  aim  to  pre- 
vent competition. 

The  almost  complete  ineffectiveness  of  the  merely  legal 
dissolution  of  the  Standard  Oil  Company  is  a  striking  ex- 
ample of  the  lack  of  adaptation  on  the  part  of  the  courts 
for  the  work  of  reorganizing  complicated  industries.  The 
oil  trust  against  which  so  much  important  legislation  has 
been  directed  has  been  allowed  to  build  up  merely  from  earn- 
ings an  investment  of  $2,000,000,000.  This  has  been  ac- 
complished through  the  unparalleled  use  of  unfair  methods 
of  competition  and  defiance  of  law  by  means  of  which  it  ob- 
tained and  maintained  its  monopolistic  position  in  the  oil 
industry  for  over  forty  years.  That  after  costly  investi- 
gations and  trials  the  trust  should  pass  through  two  court 
dissolutions  unharmed  and  unreformed,  and  be  allowed  to 
continue  its  monopolistic  control  in  the  interest  of  a  few 
is  a  travesty  upon  justice.  This  dissolution,  which  largely 
overshadows  the  good  accomplished  by  the  Government  in 
its  policy  of  suppressing  trusts,  has  been  a  large  factor  in 
bringing  into  existence  additional  trust  legislation  and  the 
Federal  Trade  Commission. 


CHAPTER  IV 

THE   DISSOLUTION   OF   THE  AMERICAN   TOBACCO   COMPANY 

THE  decision  of  the  Supreme  Court  in  the  American 
Tobacco  Company  case  was  rendered  only  two  weeks 
after  the  Standard  Oil.  Its  chief  significance  was  in  the 
size  and  complexity  of  the  combination  involved,  the  atti- 
tude of  the  courts  in  assisting  to  carry  out  the  trust  laws, 
and  the  nature  of  dissolution  required. 

In  the  production  of  tobacco  the  United  States  easily 
ranks  first.  Tobacco  production,  which  had  already  become 
important  in  Colonial  days,  reached  949,357,000  pounds  in 
1909.  The  tobacco  manufactures,  which  were  valued  at 
$416,695,000,  gave  this  business  eleventh  place  in  the  ranks 
of  our  industries  according  to  the  value  of  their  products.2 
Of  the  total  value  of  tobacco  products,  cigars  made  up  ap- 
proximately 60  percent  and  chewing  and  smoking  tobacco 
about  30  percent.  The  classes  of  tobacco  manufacture  dis- 
tinguished by  the  Bureau  of  Internal  Revenue,  together  with 
the  output  of  each  class  in  1909,  were:3 

Cigars Number  6,667,774,915 

Little  cigars "  1,043,023,559 

Cigarettes "  6,836,652,435 

Plug Pounds  173,418,223 

Twist "  14,625,975 

Fine-cut "  12,481,100 

Smoking "  202,374,654 

Snuff "  28,454,958 

The  history  of  the  tobacco  combination  which  is  given  in 
the  Report  of  the  Commissioner  of  Corporations  on  the  To- 

1  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  In- 
dustry, Parts  I,  II,  and  III.  Hereafter  referred  to  as  Report  of  Bu- 
reau; 221  U.  S.  155-175;  191  Fed.  Rep.  371. 

'United  States  Census,  1910. 

8  Commissioner  of  Internal  Revenue,  Annual  Report,  1910,  pp.  108-9. 

108 


The  Dissolution  of  the  American  Tobacco  Company     109 

bacco  Industry  shows  that  the  concentration  of  control 
began  in  1890  when  five  companies  controlling  over  90 
percent  of  the  cigarette  production  united  to  form  the 
American  Tobacco  Company  of  New  Jersey.4  The  com- 
pany's capital  stock  of  $25,000,000  was  over  six  times  the 
value  of  the  tangible  assets  of  the  five  companies  and  nearly 
two  and  one-half  times  their  value  including  good  will.5 
From  this  significant  beginning  the  rapid  growth  of  the 
combination  was  the  result  of  new  acquisitions  and  fre- 
quent realignments.  The  capitalization  was  kept  excessive 
by  issuing  new  securities  against  the  good  will  of  the  com- 
bination, a  practice  made  possible  by  large  profits.  The 
capital  stock  was  increased  to  $35,000,000  the  second  year 
and  the  control  of  the  cigarette  trade  was  further  increased 
by  buying  up  several  competitors  and  by  making  exclusive 
contracts  with  others  for  the  use  of  patented  cigarette 
machines.  Not  a  year  passed  without  the  acquisition  of 
some  competing  concerns. 

In  1894  the  American  began  a  plug  tobacco  war  which 
lasted  four  years;  it  sold  plug  tobacco  at  greatly  reduced 
prices,  and  a  few  popular  brands,  including  the  "Battle 
Ax,"  below  the  cost  of  production.6  The  American  sacri- 
ficed over  $4,000,000,  but  it  rapidly  increased  its  control 
in  the  plug  tobacco  business.7  Between  1891  and  1898  fif- 
teen active  tobacco  concerns  were  acquired.  For  ten  of  the 
plants  an  all  cash  payment  of  $6,410,235  was  made,  while 
$1,115,100  in  cash  and  $4,123,000  in  stock  were  given 
in  payment  for  the  other  five.  In  1898  many  of  the  leading 
independents  left  in  the  plug  business,  wearied  by  such 
competitive  methods,  were  induced  to  join  in  a  combination 
of  the  plug  tobacco  companies.8  This  resulted  in  the  for- 
mation of  the  Continental  Tobacco  Company  with  a  capital 
stock  of  $62,290,700,  which  took  over  the  plug  business  of 
a  number  of  the  leading  independents  and  of  the  American 
Tobacco  Company.  One  of  the  leading  independents  ac- 

4  Report  of  Bureau,  Part  I,  p.  2. 

8  Ibid.,  Part  II,  p.  8. 

"Ibid., Part  I,  p.  2. 

T  Ibid.,  221  U.  S.  160. 

"Report  of  Bureau,  Part  I,  p.  3. 


110  Trust  Dissolution 

quired  was  the  P.  Lorillard  Company.  The  Continental 
gave  $6,000,000  of  its  stock  for  all  the  common  stock, 
which  controlled  the  Lorillard  Company.  The  latter  con- 
tinued its  business,  labelling  and  marketing  its  products  as 
if  it  were  an  independent  concern.  After  increasing  its  capi- 
tal stock  to  $97,690,700  in  1899,  the  Continental  acquired 
the  Liggett  and  Myers  Tobacco  Company,  the  largest  and 
most  important  plug  tobacco  company.  For  $5,000,000  in 
cash  and  the  assets  of  the  Liggett  and  Myers,  the  Conti- 
nental gave  $35,000,000  of  its  own  stock,  half  preferred  and 
half  common.  This  acquisition  gave  the  Continental  60 
percent  of  the  plug  business.9  The  Continental  then  pro- 
ceeded to  acquire  the  stock  and  business  of  other  concerns 
giving  in  payment  $29,863,600  more  of  its  own  stock.10 

By  the  same  transaction  through  which  the  Continental 
secured  the  Liggett  and  Myers,  the  American  Tobacco  Com- 
pany secured  control  of  the  Union  Tobacco  Company,  one 
of  the  strongest  financial  competitors  of  the  American.11 
The  Union  Company  had  secured  control  of  the  Liggett  and 
Myers.  The  American  gave  $12,500,000  of  its  stock  for 
the  Union  company  and  at  the  same  time  it  increased  its 
own  stock  issue  from  $35,000,000  to  $68,500,000^  2  The 
Union  company  was  dissolved.  With  this  and  other  acqui- 
sitions the  American  had  by  the  end  of  1899  as  large  a  con- 
trol of  the  smoking  tobacco  as  the  Continental  had  of  the 
plug  business.13  The  American's  increased  capital  stock  not 
used  for  acquiring  other  concerns  was  largely  disposed  of 
in  1899  by  declaring  a  stock  dividend  of  $21,000,000  or  100 
percent  on  its  common  stock. 

In  1900,  the  American  and  the  Continental  companies 
secured  control  of  practically  all  the  important  snuff  con- 
cerns of  the  country.  The  control  of  the  business  was 
acquired  through  the  American  Snuff  Company,  which  was 
organized  for  this  purpose  in  1900  with  a  capital  stock  of 
$23,001, 700.14  The  two  largest  independent  snuff  com- 

9  Report  of  Bureau,  Part  I,  p.  100. 

10  Ibid.,  pp.  3,  103. 
"  Ibid.,  pp.  73-6. 

"Report  of  Bureau,  Part  II,  p.  2;  Part  I,  p.  75. 
"  Ibid.,  Part  II,  p.  3. 
14  Ibid.,  Part  I,  pp.  5-6. 


Dissolution  of  the  American  Tobacco  Company     111 

panics  were  the  Atlantic  Snuff  Company,  the  most  impor- 
tant company  in  the  field  and  itself  a  combination  of  snuff 
companies,  and  the  George  W.  Helme  Company.  These  were 
both  acquired  by  the  American  Snuff  Company  for  about 
$13,000,000  of  its  own  stock,  and  as  part  of  the  agreement 
the  officers  and  directors  of  the  acquired  companies  agreed 
to  keep  out  of  the  snuff  business.15 

The  combined  interests  in  1901  entered  the  cigar  busi- 
ness. This  was  the  most  important  branch  of  the  tobacco 
manufacture,  but  it  was  also  the  most  difficult  in  which  to 
secure  an  effective  control  because  of  the  immense  number 
of  concerns  in  the  trade.  The  small  amount  of  capital  re- 
quired and  the  large  percentage  of  cost  due  to  labor,  en- 
abled small  companies  to  engage  in  the  cigar  trade.  In 
1901  the  combination  organized  the  American  Cigar  Com- 
pany with  a  capital  stock  of  $9,965,000.  Soon  afterward 
$10,000,000  of  gold  notes  guaranteed  by  the  American  and 
Continental  companies  were  issued  by  the  new  company. 
Later  the  preferred  stock  was  increased  by  $10,000,000. 
The  American  Cigar  Company  took  over  most  of  the  cigar 
business  of  the  combination,  and  also  purchased  many  other 
cigar  companies  before  the  close  of  the  year,  making  it  the 
largest  single  manufacturer  of  cigars  in  the  country.  Among 
the  first  important  acquisitions  was  the  Havana-American 
Company,  which  controlled  an  annual  output  of  about  one 
hundred  million  high-grade  cigars,  chiefly  made  from  Cuban 
tobacco. 

In  1901,  the  leading  interests  in  the  American  and  Con- 
tinental companies,  in  order  to  centralize  the  control  of  the 
tobacco  industry,  organized  the  Consolidated  Tobacco  Com- 
pany, a  holding  company  with  a  capital  stock  of  $30,000,- 
000,  later  increased  to  $40,000,000,  all  paid  in  cash.16  This 
company  acquired  practically  all  the  common  stock  of  the 
American  and  Continental  companies,  issuing  in  exchange 
therefor  $157,378,200  of  4  percent  bonds.  Six  men  who 
had  been  very  influential  in  the  two  companies  received 
over  half  of  the  stock  of  the  Consolidated  company,  thereby 

15  221  U.  S.  168. 

"Report  of  Bureau,  Part  I,  pp.  7-9. 


112  Trust  Dissolution 

placing  themselves  in  a  position  to  dominate  the  entire  com- 
bination.17 This  resulted  in  a  greater  concentration  of 
profits,  as  well  as  of  control.  The  Consolidated  was  a  great 
financial  success.  After  paying  interest  on  its  preferred 
stock  and  bonds,  there  accumulated  for  the  common  stock, 
during  three  years  and  four  months,  a  profit  of  fully  $3,- 
000,000.18  The  capital  stock,  paid  in  cash,  and  the  large 
profits  were  available  for  an  expansion  policy,  and  enormous 
sums  were  expended  in  extending  the  operations  of  the  com- 
bination, both  at  home  and  abroad. 

A  competitive  warfare  of  extraordinary  vigor  was 
launched  in  1901  to  secure  control  of  the  tobacco  business 
of  Great  Britain.19  In  the  same  year  thirteen  of  the  leading 
tobacco  manufacturers  of  Great  Britain  and  Ireland,  in 
order  to  resist  the  invasion  of  their  market,  combined  to 
form  the  Imperial  Tobacco  Company.  Toward  the  end  of 
1902  an  agreement  was  effected  which  ended  the  war.  The 
American  interests  relinquished  their  entire  business  in  Great 
Britain  and  Ireland  to  the  Imperial.  The  latter,  on  its 
part,  agreed  not  to  manufacture  or  sell  tobacco  in  the 
United  States  or  its  dependencies  or  in  Cuba.  The  American 
and  Imperial  interests  then  joined  in  organizing  a  third 
company  to  exploit  the  tobacco  business  of  the  rest  of  the 
world.  This  was  the  British-American  Tobacco  Company 
organized  in  1902  under  the  laws  of  England,  with  a  capital 
stock  of  $25,369,302.  The  American  and  Imperial  interests 
which  owned  this  stock  in  the  ratio  of  two  to  one,  respec- 
tively, turned  over  their  foreign  trade  to  the  new  company. 
In  the  same  year,  through  the  activity  of  the  American  Cigar 
Company,  the  American  secured  a  strong  position  in  the 
cigar  business  of  Cuba.  The  Cuban  business  was  taken  over 
by  the  Havana  Tobacco  Company  which  was  organized  for 
this  purpose  in  1902. 

Among  the  numerous  domestic  cigar  companies  pur- 
chased or  formed  by  the  combination  about  this  time  were 
the  United  States  Cigar  Stores  Company  and  the  American 

17  Report  of  Bureau,  Part  I,  p.  9. 

18  Ibid. 

"Ibid.,  pp.  9-10;   165-176. 


The  Dissolution  of  the  American  Tobacco  Company     113 

Stogie  Company.  The  former,  organized  in  1901,  handled 
the  retail  business  of  the  combination,  and  rapidly  obtained 
an  influential  position.  The  combination  also  entered  ex- 
tensively into  the  manufacture  of  stogies,  a  cheap  form  of 
cigars  made  chiefly  by  machinery.  The  American  Stogie 
Company  was  organized  in  1903  with  $11,85(5,000  of  stock 
by  the  American  Cigar  Company  for  the  purpose  of  acquir- 
ing a  combination  of  the  leading  stogie  manufactures.20  The 
American  Cigar  Company  also  obtained  control  of  a  number 
of  other  cigar  companies  and  of  a  dozen  or  more  wholesale 
or  retail  companies.21 

During  the  rapid  expansion  following  the  formation  of 
the  Consolidated  in  1901,  the  combination  also  engaged  in 
numerous  contributory  enterprises  connected  with  the  manu- 
facture of  tobacco.22  Two  of  these  related  to  licorice  paste 
and  tin-foil.  Licorice,  next  to  leaf  tobacco,  is  the  most  im- 
portant raw  material  used.  It  constitutes  from  15  to  30 
percent  of  the  weight  and  6  to  16  percent  of  the  factory 
cost  of  a  large  part  of  the  plug  tobacco.23  About  40,000,000 
pounds  or  90  percent  of  the  total  output  were  used  in  the 
tobacco  factories  in  1908.  The  combination  secured  a  mo- 
nopoly control  of  the  licorice  paste  business  through  the 
McAndrews  and  Forbes  Company  which  was  organized  in 
1902  with  a  capital  stock  of  $7,000,000.24  This  new  com- 
pany absorbed  control  of  the  few  remaining  competitors,  in- 
cluding the  J.  S.  Young  Company,  giving  the  combination 
almost  complete  control  of  licorice.  The  price  of  licorice 
sold  to  the  independents,  who  were  dependent  upon  the  com- 
bination for  their  supply,  was  the  subject  of  much  complaint, 
and  in  1907  the  McAndrews  and  Forbes  and  J.  S.  Young 
companies  were  convicted  under  the  Sherman  Law  of  monop- 
olizing the  licorice  paste  trade,  and  fined  $18,000. 25  The 
tin-foil  control  was  effected  through  the  Conley  Foil  Com- 
pany. This  company  acquired  its  chief  competitor,  the 

30  Report  of  Bureau,  Part  I,  pp.  10-11. 

21  Ibid.,  pp.  26-7. 

22  Ibid.,  pp.  23-5. 

23  Ibid. 

24  Report  of  Bureau,  Part  I,  pp.  24;  109-10. 

25The  Federal  Antitrust  Laws,  Washington,  1916,  p.  52. 


114  Trust  Dissolution 

Johnson  Tinfoil  and  Metal  Company.     These  two  companies 
supplied  the  tin-foil  used  by  the  tobacco  combination. 

In  1904  the  American,  Continental  and  Consolidated 
companies  were  merged  into  the  (new)  American  Tobacco 
Company  of  New  Jersey.  This  action  followed  the  North- 
ern Securities  decision  which  condemned  a  pure  holding 
company  similar  to  the  Consolidated.  The  merger  further 
strengthened  the  position  of  the  men  in  control  of  the  in- 
dustry and  served  to  simplify  the  organization  and  the  se- 
curity issues.  The  securities  of  the  new  American  were 
$255,292,100,  consisting  of  $40,242,400  of  common  stock, 
$78,689,100  preferred,  and  $136,360,600  of  bonds.  All 
the  securities  were  given  in  exchange  for  the  securities  of 
the  three  companies.26  The  preferred  stock  which  was 
largely  held  by  the  public  did  not  receive  voting  power.  In 
1906  ten  men,  seven  of  whom  were  directors,  held  over  60 
percent  of  the  common  stock.27  During  the  years  1908-11 
the  common  stock  received  nearly  one-half  of  the  entire  earn- 
ings as  dividends.28 

The  new  American  continued  to  extend  the  control  of 
the  combination  by  the  same  methods  that  had  characterized 
the  latter  throughout.  Independents  were  acquired  and  re- 
strictive covenants  against  reentering  the  business  taken 
from  the  vanquished.  Often  the  companies  were  secretly 
acquired  and  their  operation  as  independents  was  persist- 
ently denied.  As  a  result  of  frequent  ^consolidation  they 
became  a  complex  structure  of  holding  companies.  In  addi- 
tion to  this,  the  business  of  tobacco  manufacture  was  special- 
ized in  separate  plants  which  were  coordinated  to  a  very 
high  degree.  Many  plants  were  abandoned  in  order  to  ac- 
complish this  object.  The  combination  also  developed  one 
or  two  predominating  brands  for  each  of  the  various  types 
or  classes  of  tobacco  products  in  order  to  promote  concen- 
tration and  economy  in  manufacture,  and  at  the  same  time 
to  afford  greater  protection  against  competition  than  could 
be  secured  by  a  multiplicity  of  brands.  The  existence  of 

28  Report  of  Bureau,  Part  I,  pp.  11-12. 

"Ibid.,  p.  16. 

38  Ibid.,  Part  II,  p.  3. 


e  Dissolution  of  the  American  Tobacco  Company     115 


these  leading  brands  presented  great  difficulties  in  dividing 
the  business  at  the  time  of  dissolution. 

The  monopolistic  position  of  the  tobacco  combination  is 
proven  by  the  following  table,  which  shows  the  percentage 
of  the  total  production  in  the  United  States  controlled  by 
the  combination  in  each  branch  of  the  trade  from  1890  to 
1910.29 


Year 

Plug 

Smoking 

Fine 
Cut 

Snuff 

Cigarette 

Little 
Cigars 

Cigars 

1890 

7.9 

1891 

2  7 

18.0 

3.3 

3.6 

88.9 

1892 

3.5 

21.9 

4.1 

4.0 

87.9 

1893 

5.9 

21.7 

4.7 

4.7 

85.3 

1894 

5.6 

20.6 

4.3 

3.4 

86.5 

1895 

12.4 

22.5 

4.3 

3.9 

87.3 

.... 

.... 

1896 

20.0 

20.7 

4.5 

5.6 

83.4 

.... 

.... 

1897 

20.9 

22.7 

4.6 

4.8 

80.0 

1898 

23.0 

26.9 

6.0 

6.1 

88.3 

48'.7 

'2.2 

1899 

56.3 

54.3 

48.5 

32.4 

94.7 

54.7 

4.0 

1900 

62.0 

59.2 

50.5 

78.0 

92.7 

60.6 

4.8 

1901 

67.7 

57.8 

48.1 

80.2 

88.9 

73.3 

10.9 

1902 

71.2 

66.3 

73.7 

85.9 

84.6 

71.8 

14.3 

1903 

76.9 

67.1 

77.6 

89.4 

83.9 

57.9 

16.4 

1904 

78.2 

69.2 

80.4 

90.6 

87.7 

79.2 

13.9 

1905 

80.7 

68.7 

81.7 

93.8 

84.7 

78.3 

13.3 

1906 

81.8 

70.6 

80.9 

96.0 

82.5 

81.3 

14.7 

1907 

80.5 

72.4 

81.4 

95.7 

81.7 

90.8 

14.5 

1908 

81.0 

73.6 

79.6 

95.7 

81.8 

88.7 

13.0 

1909 

83.3 

75.3 

80.1 

96.1 

83.6 

89.0 

13.1 

1910 

84.9 

76.2 

79.7 

96.5 

86.1 

91.4 

14.4 

This  table  shows  that  the  combination  by  1902  had  a 
monopolistic  position  in  each  of  the  chief  branches  of  the 
tobacco  business,  except  cigars.  The  minimum  proportion 
of  the  annual  output  in  the  several  branches  following  1902 
ranged  from  two-thirds  to  over  five-sixths  of  the  total  out- 
put, except  in  cigars  in  which  the  greatest  percentage  was 
only  one-sixth  of  the  total.  This  monopolistic  position  was 
secured  by  improper  methods  of  competition  among  which 
may  be  mentioned  frequent  reconsolidations  for  the  purpose 

29  Report  of  Bureau,  Part  III,  pp.  49,  84,  127,  138,  153,  181,  192. 


116  Trust  Dissolution 

of  centralizing  control  in  the  hands  of  a  few  and  to  hide  the 
results  obtained ;  restrictive  covenants  with  competitors 
whose  interests  had  been  acquired ;  restrictive  contracts  with 
jobbers  and  dealers  by  which  only  the  combination's  goods 
could  be  handled;  acquisition  of  stores  and  factories  and 
their  operation  as  independents ;  ruinous  price  cutting  and 
trade  wars  waged  with  fighting  brands,  sometimes  sold  below 
cost;  division  of  territory,  both  at  home  and  abroad;  mo- 
nopolization of  raw  materials,  especially  licorice  root;  ex- 
tended loans  and  credits  to  retail  dealers ;  acquisition  of 
stocks,  trade-marks,  patents  and  other  essential  elements  of 
tobacco  manufacture.  The  practice  of  acquiring  and  oper- 
ating factories  and  retail  stores  as  independents  was  a  power- 
ful weapon  against  the  real  independents  and  was  looked 
upon  by  them  as  their  worst  enemy.  Often  its  aim  was  to 
overcome  the  effects  of  anti-trust  sentiment  and  union  label 
hostility.  The  combination  refused  to  deal  with  labor  or- 
ganizations and  thereby  caused  much  hostility  among  union 
men,  who  in  turn  favored  the  union-label  goods  of  the  inde- 
pendents. 

The  excessive  capitalization  and  earnings  of  the  combi- 
nation are  shown  in  part  by  the  accompanying  table  which 
includes  only  the  American,  Continental  and  Lorillard  com- 
panies. The  subsidiary  and  contributory  concerns  of  these 
companies  and  the  American  Snuff  Company  and  the  Amer- 
ican Cigar  Company  groups,  and  the  miscellaneous  invest- 
ments are  not  included.  The  table  covers  the  years  from 
1890  to  1908,  showing  the  revised  value  of  good-will  or 
intangible  assets ;  total  assets,  including  good-will  at  cash 
purchase  value,  used  in  direct  business ;  and  annual  earnings 
based  (a)  upon  total  assets,  (b)  upon  tangible  assets  alone.30 

The  table  shows  that  the  valuation  placed  upon  good  will 
was  very  large.  Good-will  is  a  legitimate  and  important  in- 
vestment, but  no  other  basis  than  actual  cost  value  could  be 
used  in  analyzing  monopolistic  profits.  Good-will  was  valued 
by  the  combination  in  1890  by  nearly  two  and  one-half 
times  its  actual  cost  value  as  computed  by  the  Bureau.  Al- 
30  Bureau's  Report,  Part  II,  pp.  126-7;  133;  160;  163. 


The  Dissolution  of  the  American  Tobacco  Company     117 


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118  Trust  Dissolution 

though  the  excessive  valuation  of  good  will  was  frequently 
reduced  it  was  increased  at  each  reconsolidation  and  in  1908 
it  was  still  valued  at  nearly  three  times  its  actual  cost  value. 
Had  none  of  the  excess  valuation  of  good  will  been  written  off 
the  over-valuation  of  good  will  would  have  amounted  to 
over  $110,000,000.31 

The  table  also  shows  that  the  total  assets  used  directly 
in  the  business  of  the  companies,  including  good  will  at 
actual  cost  value,  increased  from  $13,881,533  in  1890  to 
$102,354,917  in  1908.  The  percentage  of  tangible  assets  to 
total  assets  increased  very  gradually  from  34.8  percent  in 
1890  to  61.8  percent  in  1908.  The  earnings  of  the  com- 
panies, based  upon  the  total  assets,  were  excessive  through- 
out the  entire  period.  The  only  year  of  relatively  low  earn- 
ings was  in  1899,  the  year  when  both  the  tangible  and  intan- 
gible assets  were  greatly  increased.  During  all  other  years 
the  earnings  ranged  from  12.3  to  23.6  percent  upon  the  total 
assets,  and  from  24.2  to  52  percent  upon  the  tangible  assets. 
For  the  five  year  period  beginning  with  the  last  reorganiza- 
tion (1904-8)  the  earnings  averaged  21.1  percent  of  the 
total  assets  and  37.5  percent  upon  the  tangible  assets. 

The  earnings  of  the  subsidiary  tobacco  and  contributory 
concerns  of  the  American,  Continental  and  Lorillard  com- 
panies were,  during  the  years  just  prior  to  1908,  even 
higher  than  for  the  parent  companies.  The  total  assets  of 
this  group  were  $35,416,727  in  1908.  While  the  assets  of 
the  group  were  about  one-third  of  the  combined  assets  of  the 
parent  companies,  the  earnings  were  more  than  one-half  as 
large  as  those  of  the  parent  companies.  The  investment  of 
the  American  Snuff  Company  group  was  $19,390,676  in 
1908.  No  other  group  had  higher  earnings.32  The  invest- 
ment of  the  American  Cigar  Company  group  was  $24,721,- 
032  in  1908,  and  the  earnings  were  much  lower  and  more 
irregular  than  for  the  companies  in  other  branches  of  the  to- 
bacco industry.33  The  miscellaneous  investments  of  the 
combination  amounted  to  $58,669,441  in  1908.34  Some  of 

"Report  of  Bureau,  Part  II,  p.  13. 

88  Ibid.,  pp.  305,  308. 

» Ibid. 

"The  stocks  held  were  computed  at  their  book  value. 


The  Dissolution  of  the  American  Tobacco  Company     119 

these  investments  brought  large  dividend  returns,  others 
less,  and  some  none.  The  rate  of  return  upon  the  total 
miscellaneous  investment  was  much  less  than  upon  the  in- 
vestment in  the  direct  tobacco  business,  the  average  rate  of 
return  being  7.4  percent  from  1904-1908. 35  Among  the  in- 
vestments bringing  the  largest  returns  were  the  stocks  held 
in  the  Imperial  British  American  and  Porto  Rican-American 
companies.36 

The  total  investment  of  the  tobacco  combination  in  direct 
business  and  miscellaneous  forms  for  the  years  1904  and 
1908  was  distributed  as  follows:37 

1904  1908 

American  and  Lorillard  Companies .  $82,102,088  $102,254,917 
Subsidiary  tobacco  and  contributory 

group 29,168,940      35,416,729 

American  Snuff  Company  group .  .  .  14,574,917       19,390,676 

American  Cigar  Company  group.  .  .  20,248,790      24,721,032 

Miscellaneous  investments 64,857,337      58,669,441 

Total $210,952,072  $240,452,795 

The  profits  obtained  from  each  branch  of  the  trade  fur- 
nish a  better  test  of  monopolistic  control  in  the  tobacco  in- 
dustry than  the  general  average  profit.  The  rates  of  profit 
varied  with  the  degree  of  monopolistic  control,  the  greater 
the  degree  of  control  in  each  branch  of  the  trade  the  greater 
was  the  rate  of  profit.38  In  the  plug,  smoking,  and  fine  cut 
branches  the  rate  of  profit  became  much  higher  as  the  con- 
trol of  the  annual  output  began  to  exceed  50  percent.  The 
profits  in  the  cigarette  branch  had  been  high  ever  since  the 
beginning  of  the  combination  in  1890.  In  no  branch  were 
the  profits  so  high  and  the  variations  from  year  to  year  so 
small  as  in  the  snuff  branch  where  the  control  was  most  com- 
plete. On  the  other  hand,  the  comparative  unprofitableness 
of  the  cigar  branch,  where  no  large  control  was  ever  ob- 
tained by  the  combination,  stands  in  sharp  contrast  with 

85  Report  of  Bureau,  Part  II,  p.  303. 

86  Ibid. 

87  Ibid.,  p.  305. 

88  Ibid.,  Part  III,  pp.  2,  3,  54,  89,  131  and  140. 


120  Trust  Dissolution 

the  profitableness  of  the  other  branches  where  a  high  degree 
of  control  prevailed.  The  influence  of  competition  in  pre- 
venting excessive  profits  is  well  shown.  The  rates  of  profit 
for  the  combination  were  two  to  three  times  higher  than  the 
most  important  and  prosperous  companies  received  before 
the  formation  of  the  combination.  When  the  comparison  is 
made  between  the  earnings  of  the  combination  and  indepen- 
dent companies  of  the  years  prior  to  1910,  the  disparity  of 
earnings  is  even  greater.  For  these  years  the  rates  of  profit, 
based  upon  the  tangible  assets,  were  from  two  and  one-half 
to  four  times  greater  than  for  the  more  important  and  pros- 
perous of  the  independents.39 

Several  other  evidences  of  monopoly  and  its  abuse  may 
be  noted.  The  most  striking  illustration  of  the  combination's 
ability  to  fix  and  maintain  prices  was  shown  at  the  time  of 
reducing  the  internal  revenue  taxes  in  1901-2.  During  the 
Spanish  war  period  practically  all  the  manufacturers  in  this 
field  increased  their  prices  to  offset  the  increase  of  taxes.40 
During  1901-2  the  taxes  were  reduced  6  cents  per  pound  on 
manufactured  tobacco,  42  cents  per  thousand  on  cigarettes, 
and  46  cents  per  thousand  on  little  cigars,  but  the  combi- 
nation companies  made  practically  no  change  in  prices  to 
the  jobbers  and  left  the  prices  to  the  consumer  unchanged,41 
and  thus  profited  by  substantially  the  whole  extent  of  the 
tax  reduction,  though  Congress  intended  by  the  reduction  to 
benefit  the  consumer.  The  combination  added  millions  of 
dollars  to  its  annual  income  as  a  result.  Its  most  prosperous 
years  were  from  1903  to  1908.42  The  reduction  of  the  tax 
was  sufficient  to  have  enabled  the  use  of  the  statutory  sizes 
of  packages  in  use  before  the  war.43  Another  evidence  of 
monopoly  control  is  shown  by  the  fact  that  while  prices  of 
the  principal  brands  of  products  remained  practically  un- 
changed for  the  consumer  from  1901  to  1910,  the  prices  of 
these  products  were  materially  increased  to  the  jobbers,  there- 

89  Report  of  Bureau,  Part  II,  pp.  331-332. 

40  Ibid.,  Part  I,  p.  245. 

41  Ibid.,  Part  III,  p.  6. 
48  Ibid.,  Part  I,  p.  152. 
43  Ibid.,  Part  III,  p.  T. 


The  Dissolution  of  the  American  Tobacco  Company     121 

by  reducing  the  margins  for  the  dealers  and  jobbers.44  The 
constancy  of  prices  retained  over  long  periods  of  time  and 
with  usually  higher  prices  for  each  succeeding  period  since 
1890  is  further  evidence  of  a  unity  of  control.  There  was 
also  concerted  suppression  of  competition  in  the  purchase  of 
leaf  tobacco.  The  attempt  to  bear  down  the  price  of  leaf 
tobacco  gave  occasion  for  the  rise  of  the  "Night-riders"  and 
their  lawless  violence  in  Kentucky  and  Tennessee,  which  was 
an  attempt  to  curtail  the  leaf  crop  output  and  thus  compel 
higher  prices. 

It  is  also  proper  to  point  out  how  the  monopolistic 
control  of  the  tobacco  combination  was  used  for  building  up 
individual  fortunes  through  profits  derived  from  inflated 
securities.  An  investment  of  $1,000  in  the  original  $25,- 
000,000  combination  of  1890,  if  held  intact,  would  have 
yielded  by  1908,  $5,030  in  dividends  and  an  increased  market 
value  of  the  securities  to  the  amount  of  $4,800,  making  the 
investment  in  1908  nearly  eleven  times  what  it  was  in  1890. 45 
However,  the  bulk  of  the  original  stock  was  exchanged  for 
bonds  of  the  Consolidated  in  1901,  and  in  this  case  the  in- 
vestment increased  a  little  over  six  times.  The  inflation 
of  securities  may  be  illustrated  on  a  larger  scale  by  showing 
the  increased  investment  represented  by  the  W.  Duke  Sons 
and  Company,  one  of  the  original  companies  entering  the 
combination.46  This  business  was  organized  in  1878  with 
a  capital  of  $70,000.  In  1885  it  was  incorporated  with 
$250,000.  In  1890  it  received  $7,500,000  of  the  original 
stock  of  the  combination.  By  1908  the  Duke  business  was 
the  basis  of  a  capitalization  of  $22,000,000  of  par  value 
stock  and  bonds,  whose  market  value  was  $20,000,000.  Divi- 
dends and  interest  received  from  these  securities  between 
1890  and  1908  amounted  to  $16,935,000.  Thus  the  Duke 
business  valued  at  $250,000  in  1885  represented  a  market 
value  of  fully  $37,000,000  by  1908.  The  large  profits  de- 
rived from  earnings  and  inflated  securities  did  not  benefit 

44  Report  of  Bureau,  Part  III,  pp.  7,  8. 

45  Ibid.,  Part  II,  pp.  310-11. 

46  Ibid.,  pp.  311-12. 


Trust  Dissolution 

all  the  security  holders  proportionately,  but  chiefly  the  com- 
mon stockholders,  ten  of  whom  owned  63  percent  of  such 
stock  in  1906.47 

In  1907  the  Government  filed  a  bill  to  dissolve  the  to- 
bacco combination.  The  defendants  were  twenty-nine  indi- 
viduals, sixty-five  American  corporations,  most  of  which 
were  organized  in  the  State  of  New  Jersey,  and  two  English 
corporations.  The  corporate  defendants,  exclusive  of  the 
foreign  ones,  were  classified  as  the  American  Tobacco  Com- 
pany, primary  defendant;  five  others  as  accessory  defen- 
dants— American  Snuff  Company,  American  Cigar  Company, 
American  Stogie  Company,  McAndrews  and  Forbes  Com- 
pany, and  Conley  Foil  Company;  and  the  other  fifty-nine 
American  corporations  as  subsidiary  defendants.  The  de- 
cision of  the  Circuit  Court  in  1908  was  in  many  respects 
favorable  to  the  Government.48  Briefly,  the  decision  dis- 
missed the  petition  as  to  all  the  individual  defendants,  the 
United  Cigar  Stores  Company,  three  of  the  subsidiary  com- 
panies, and  the  two  foreign  companies.  The  remaining  de- 
fendants were  held  to  be  in  violation  of  the  Sherman  law  and 
were  restrained  from  continuing  the  purposes  of  the  combi- 
nation. Both  sides  appealed  to  the  Supreme  Court.  The 
Government  claimed  that  the  relief  granted  was  inadequate 
and  that  the  petition  should  not  have  been  dismissed  as  to 
any  of  the  defendants. 

In  May,  1911,  the  Supreme  Court  rendered  its  decision. 
Concerning  the  disputed  points  it  declared  as  follows :  "In 
our  opinion  the  case  can  be  disposed  of  by  considering  only 
those  facts  which  are  indisputable."  The  court  declared 
that  "the  history  of  the  combination  is  so  replete  with  the 
doing  of  acts  which  it  was  the  obvious  purpose  of  the  statute 
to  forbid,  so  demonstrative  of  the  existence  from  the  begin- 
ning of  a  purpose  to  acquire  dominion  and  control  of  the 
tobacco  trade,  not  by  the  mere  exertion  of  the  ordinary  right 

47  Report  of  Bureau,  Part  II,  p.  18. 
48 164  Fed.  Rep.  700. 
49  221   U.  S.  155. 


The  Dissolution  of  the  American  Tobacco  Company     123 

to  contract  and  to  trade  but  by  methods  devised  in  order  to 
monopolize  the  trade  by  driving  competitors  out  of  business, 
which  were  ruthlessly  carried  out  upon  the  assumption  that 
to  work  upon  the  fears  or  play  upon  the  cupidity  of  compet- 
itors would  make  success  possible.  We  say  these  conclusions 
are  inevitable,  not  because  of  the  vast  amount  of  property 
aggregated  by  the  combination,  not  because  alone  of  the 
many  corporations  which  the  proof  shows  were  united  by 
resort  to  one  device  or  another.  Again,  not  alone  because 
of  the  dominion  and  control  over  the  tobacco  trade  which 
actually  exists,  but  because  we  think  the  conclusion  of 
wrongful  purpose  and  illegal  combination  is  overwhelmingly 
established  by  the  following  considerations : 

(A)  By  the  fact  that  the  very  first  organization  or  com- 
bination was  impelled  by  a  previously  existing  fierce  trade 
war,  evidently  inspired  by  one  or  more  of  the  minds  which 
brought  about  and  became  parties  to  that  combination. 

(B)  Because,   immediately  after  that  combination   and 
the  increase  of  capital  which  followed,  the  acts  which  ensued 
justify  the  inference  that  the  intention  existed  to  use  the 
power  of  the  combination  as  a  vantage  ground  to  further 
monopolize  the  trade  in  tobacco  by  means  of  trade  conflicts 
designed  to  injure  others,  either  by  driving  competitors  out 
of  the  business  or  compelling  them  to  become  parties  to  a 
combination — a  purpose  whose  execution  was  illustrated  by 
the  plug  war  which  ensued  and  its  results,  by  the  snuff  war 
Vhich  followed  and  its  results,  and  by  the  conflict  which  im- 
mediately followed  the  entry  of  the  combination  in  England 
and  the  division  of  the  world's  business  by  the  two  foreign 
contracts  which  ensued. 

(C)  By  the  ever-present  manifestation  which  is  exhibited 
of  a  conscious  wrong-doing  by  the  firm  in  which  the  various 
transactions  were  embodied  from  the  beginning,  ever  chang- 
ing but  ever  in  substance  the  same.     Now  the  organization 
of  a  new  company,  now  the  control  exerted  by  the  taking  of 
stock  in  one  or  another  or  in  several,  so  as  to  obscure  the 
result  actually  attained,  nevertheless  uniform,  in  their  mani- 
festations of  the  purpose  to  restrain  others  and  to  monopo- 


Tru$t  Dissolution 

lize  and  retain  power  in  the  hands  of  the  few  who,  it  would 
seem,  from  the  beginning  contemplated  the  mastery  of  the 
trade  which  practically  followed. 

(D)  By  the  gradual  absorption  of  control  over  all  the 
elements  essential  to  the  successful  manufacture  of  tobacco 
products,  and  placing  such  control  in  the  hands  of  seemingly 
independent  corporations  serving  as  perpetual  barriers  to 
the  entry  of  others  into  the  tobacco  trade. 

(E)  By  persistent  expenditure  of  millions  upon  millions 
of  dollars  in  buying  out  plants,  not  for  the  purpose  of  util- 
izing them,  but  in  order  to  close  them  up  and  render  them 
useless  for  the  purposes  of  trade. 

(F)  By  the  constantly  recurring  stipulations,  whose  le- 
gality, isolatedly,  we  are  not  considering,  by  which  numbers 
of  persons,  whether  manufacturers,  stockholders  or  employ- 
ees,  were   required   to    bind    themselves    generally    for   long 
periods,  not  to  compete  in  the  future."  50 

The  Supreme  Court  did  not  believe  the  relief  granted  by 
the  Circuit  Court  was  broad  enough,  and  also  that  the  Cir- 
cuit Court  erred  in  dismissing  the  bill  against  the  individual 
defendants,  the  foreign  corporations  and  their  subsidiary 
companies,  and  the  United  Cigar  Stores  Company.51  In- 
stead of  affirming  or  modifying  the  Circuit  Court  decree  it 
was  reversed.  The  Supreme  Court  gave  instructions  and 
directed  the  Circuit  Court  to  enter  a  decree  in  conformity 
with  its  directions  and  conclusions.  In  determining  upon 
this  course  the  court  was  guided  by  three  motives :  giving 
complete  effect  to  the  statute,  the  least  possible  harm  to  the 
public,  and  protection  to  innocent  stockholders.52  The  con- 
viction that  a  prohibition  of  interstock  ownership  would  af- 
ford only  partial  relief  and  that  the  unification  and  com- 
plexity of  the  consolidation  made  it  impossible  to  formulate 
a  remedy  that  would  restore  original  conditions,  deterred 
the  court  from  decreeing  any  specific  dissolution  lest  "any 
remedy  it  might  suggest  should  operate  to  injure  the  public 
and  perpetuate  the  wrong  created."  53 

60  221  U.  S.  181-6. 

01 221  U.  S.  185. 

62  221  U.  S.  185. 

68  221  U.S.  185-6. 


The  Dissolution  of  the  American  Tobacco  Company 

The  decree  of  the  Supreme  Court  was: 

1.  "That  the  combination  in  and  of  itself  as  well  as  each 
and  all  of  the  elements  composing  it,  whether  corporate  or 
individual,  whether  considered  collectively  or  separately,  be 
decreed  to  be  in  restraint  of  trade  and  an  attempt  to  mo- 
nopolize and  a  monopolization  within  the  first  and  second 
sections  of  the  Anti-trust  Act. 

&.  "That  the  Court  below,  in  order  to  give  effective  force 
to  our  decree  in  this  regard,  be  directed  to  hear  the  parties 
by  evidence  or  otherwise,  as  it  may  be  deemed  proper,  for 
the  purpose  of  ascertaining  and  determining  upon  some  plan 
or  method  of  dissolving  the  combination  and  of  recreating, 
out  of  the  elements  now  composing  it,  a  new  condition  which 
shall  be  honestly  in  harmony  with  and  not  repugnant  to  the 
law."  54 

3.  That  six  months  be  allowed  to  complete  this  arrange- 
ment with  an  extension  of  sixty  days  if  necessary. 

4.  That  in   case  no   arrangement  was   made   the   court 
should   prohibit   defendants    from   interstate    commerce   by 
means  of  an  injunction,  or  appoint  a  receiver  over  the  whole 
property  to  give  effect  to  the  law.     Pending  adjustment  the 
powers  of  the  defendants  were  not  to  be  enlarged.     This  ar- 
rangement was  required  to  be  made  without  unnecessary  in- 
jury to  the  public  or  the  rights  of  private  property.     Ad- 
ministrative power  was  granted  to  the  lower  court  "to  take 
such  further  steps  as  may  be  necessary  to  fully  carry  out 
the  directions  which  we  have  given."  55 

In  compliance  with  these  directions  the  Circuit  Court 
heard  the  parties  for  the  purpose  of  determining  upon  a  plan 
of  dissolution.  The  plan  adopted  was  proposed  by  the  de- 
fendants. "The  proposed  plan  was  filed  two  weeks  before 
this  (final)  hearing  at  which  not  only  the  parties,  but  any 
persons  interested  who  might  wish  to  express  their  views  as 
friends  of  the  Court,  were  given  opportunity  so  to  do.  While 
the  plan  is  correctly  described  as  the  proposed  plan  of  the 
American  Tobacco  Company,  since  that  corporation  and  the 
other  defendants  offer  to  carry  it  out,  it  should  be  remem- 

84  221  U.  S.  187-8. 
88  221  U.S.  188. 


126  Trust  Dissolution 

bered  that  in  its  present  form  the  plan  is  the  fruit  of  much 
discussion.  For  upwards  of  two  months  successive  confer- 
ences, in  the  presence  of  two  or  more  members  of  the  Court, 
were  had  between  the  Attorney  General  and  the  Counsel  and 
representatives  of  the  Tobacco  Company."  56  This  group 
at  the  conferences  also  included  the  attorneys  of  all  the 
defendants,  "and  nobody  else  was  permitted  to  go  to  these 
secret  conferences."  57 

The  Circuit  Court  was  not  bound  by  the  decree  of  the 
Supreme  Court  to  accept  the  plan  of  the  defendants,  yet  in 
discussing  the  plans  submitted  by  the  independents  the  Court 
said,  "No  time  need  be  given  to  the  consideration  of  these  so 
long  as  there  is  no  suggestion  that  the  defendants  will  adopt 
them.  On  the  contrary,  counsel  for  the  defendants  expressly 
stated  on  argument  that  they  would  not  undertake  to  carry 
them  out.  Presumably,  they  think  they  might  better  take 
their  chances  at  a  receiver's  sale.  This  Court  has  neither 
authority  nor  power  to  carry  out  and  enforce  any  plan  of 
readjustment  without  the  co-operation  of  the  owners  of  the 
property,  the  holders  of  these  stocks  and  bonds.  It  would 
be  a  sheer  waste  of  time,  therefore,  to  consider  any  plan 
radically  different  from  the  one  now  before  us."  58 

The  dissolution  of  the  consolidation  into  fourteen  com- 
panies was  accomplished  by  one  or  the  other  of  the  following 
methods:  59  1.  By  distributing  by  way  of  dividends,  to  the 
stockholders  entitled  thereto,  securities  of  other  companies 
held  by  the  companies  sought  to  be  disintegrated.  2.  By 
forming  one  or  more  new  companies  and  selling  to  them  prop- 
erty and  business  of  the  company  to  be  disintegrated,  in 
return  for  securities  of  the  new  companies,  and  distributing 
such  securities  to  the  rightful  stockholders.  3.  By  sale  of 
property  and  business  for  cash.  4.  By  forming  a  new 
company  and  transferring  to  it  the  property  and  business 
of  the  company  to  be  disintegrated,  for  cash  and  new  securi- 
ties to  be  offered  in  exchange  for  the  retirement  of  the  se- 

M  191  Fed.  Rep.  373. 

67  Mr.  Felix  Levy,  Hearings  Before  Senate  Interstate  Commerce  Com- 
mittee, p.  374,  1911-1912. 
68 191  Fed.  Rep.  375. 
69 191  Fed.  Rep.  391. 


The  Dissolution  of  the  American  Tobacco  Company     127 

curities  of  the  vendor  company.  5.  By  terminating  all  re- 
strictive covenants  and  making  all  free  to  enter  the  business. 
6.  By  radical  changes  in  the  voting  rights  of  stock. 

The  first  provision  of  the  disintegration  plan  was  for  the 
dissolution  of  the  Amsterdam  Supply  Company.60  This 
company  was  a  wholesale  supply  house  used  chiefly  by  the 
defendants  and  all  of  its  stock  was  owned  by  them.  The  dis- 
solution of  this  company  was  accomplished  by  converting 
its  assets  into  cash  and  distributing  them  to  its  stockholders. 
Next  all  restrictive  covenants,  both  foreign  and  domestic, 
were  abrogated  so  that  all  were  made  free  to  enter  the  to- 
bacco business.61 

The  disintegration  of  the  five  accessory  defendant  com- 
panies followed.  First:  The  Conley  Foil  Company.62  This 
company,  whose  plant  was  located  at  New  York,  completely 
owned  the  Johnston  Tin  Foil  and  Metal  Company  of  St. 
Louis,  including  its  $100,000  par  bonds.  These  two  com- 
panies were  separated.  The  Conley  Foil  Company  was  re- 
quired to  cancel  the  bonds  of  the  Johnston  Tin  Foil  and 
Metal  Company  and  distribute  the  stock  of  the  latter  among 
its  own  common  stockholders.  The  American  Tobacco  Com- 
pany which  owned  over  half  the  stock  of  the  Conley  Foil 
Company  was  required  to  cease  its  interests  in  the  latter  com- 
pany by  a  distribution  of  its  Conley  stock  among  its  own 
common  stockholders. 

Second:  The  McAndrews  and  Forbes  Company.63  This 
company,  which  had  two  plants,  produced  about  90  percent 
of  all  the  licorice  paste  manufactured  in  the  United  States. 
Over  half  of  its  product  consisted  of  a  single  brand  known 
as  "Ship  Brand."  The  McAndrews  and  Forbes  Company 
was  separated  into  two  companies  by  the  creation  of  a  new 
organization — the  J.  S.  Young  Company — which  received 
the  Baltimore  plant  with  assets  valued  at  $1,000,000  and  the 
brands  of  licorice  paste  manufactured  at  that  plant.  In 
payment,  the  J.  S.  Young  Company  issued  $1,000,000  at  par 
of  7  percent  preferred  non-voting  stock  and  $1,000,000  of 

60 191  Fed.  Rep.  418. 

« Ibid. 

92  Ibid.,  pp.  418-19. 

«191  Fed.  Rep.  394-5;  419-20. 


128  Trust  Dissolution 

common  stock.  The  McAndrews  and  Forbes  Company  upon 
receipt  of  these  securities  distributed  them  to  its  own  com- 
mon stockholders.  The  decree  required  that  the  preferred 
stock  thus  received  should  be  offered  in  exchange,  at  par,  for 
preferred  stock  of  the  McAndrews  and  Forbes  Company, 
and  that  all  preferred  stock  remaining  unexchanged  be  sold 
by  January  1,  191'S.  This  division  gave  the  McAndrews  and 
Forbes  Company  a  licorice  business,  based  upon  the  net  sell- 
ing value  in  the  year  1910,  of  $2,514,184.  Of  this,  $2,214,- 
127  was  derived  from  the  sales  of  a  single  brand.  Upon  the 
same  basis  the  J.  S.  Young  Company  received  a  business 
valued  at  $1,201,109.  The  American  Tobacco  Company, 
which  held  over  two-thirds  of  the  total  $3,000,000  of  common 
stock  and  one-fifth  of  the  $3,758,300  of  the  non-voting  pre- 
ferred stock  of  the  McAndrews  and  Forbes  Company,  dis- 
tributed the  common  stock  as  a  dividend  to  its  common  stock- 
hqlders  at  the  execution  of  the  decree,  and  was  required  to 
dispose  of  the  preferred  stock  by  January  1,  1915. 

Third :  The  American  Snuff  Company.64  This  company, 
which  controlled  90  percent  of  the  entire  snuff  business,  held 
all  the  stock  of  the  DeVoe  Snuff  Company  and  one-half  of 
the  stock  of  the  National  Snuff  Company.  The  company  was 
broken  up  into  three  companies  by  the  organization  of  two 
new  companies,  the  George  W.  Helme  and  the  Weyman  and 
Bruton  Snuff  companies,  to  which  were  conveyed  certain 
plants,  brands,  and  the  holdings  in  the  DeVoe  and  the  Na- 
tional Snuff  companies.  This  division,  based  upon  data  for 
1910,  was  as  follows: 


Tangible 

Assets 

Percentage 
Net             of  Value  of 
Income            Business 

American  Snuff  

.  .  .  $5,075,969 

$1,591,280       35.55 

George  W.  Helme 

4,909,000 

1,259,280       28.95 

Wevman  &  Bruton  .  . 

3,691,588 

1,293,759       27.68 

Each  of  the  new  corporations  paid  for  the  property  and 
business  conveyed  to  it  by  the  issue  of  $4,000,000  at  par  of 
7  percent  voting  preferred  stock,  and  $4,000,000  of  common 

*191  Fed.  Rep.  393-4;  420-21. 


The  Dissolution  of  the  American  Tobacco  Company     129 

stock.  The  American  Snuff  Company  thus  received  $16,- 
000,000  of  these  new  stocks,  of  which  the  common  stock 
was  distributed  as  a  dividend  to  its  common  stockholders. 
Preferred  stockholders  of  the  American  Snuff  Company  were 
allowed  to  exchange  at  par  proportionally  their  preferred 
stock  of  the  American  for  preferred  stock  in  the  new  com- 
panies. All  such  stock  not  exchanged  and  retired  was  to  be 
disposed  of  by  January  1,  1915.  The  American  Tobacco 
Company,  which  held  nearly  half  of  the  stock  of  the  Ameri- 
can Snuff  Company,  participated  in  the  distribution,  and 
in  turn  distributed  the  stocks  of  the  Snuff  Company  to  its 
common  stockholders. 

Fourth:  The  American  Stogie  Company.65  The  only 
assets  of  this  corporation  were  all  of  the  issued  stock  of  the 
Union- American  Cigar  Company.  The  American  Cigar  Com- 
pany held  a  small  portion  of  its  preferred  stock,  and  $7,- 
303,775  of  the  $10,879,000  of  common  stock.  No  other  de- 
fendants owned  any  of  its  stocks.  The  American  Stogie 
Company  in  dissolving  was  given  the  choice  of  converting  its 
assets  into  cash  and  distributing  them  to  its  stockholders,  or 
of  effecting  a  reorganization  as  best  it  could ;  provided  that 
in  either  event,  there  should  be  a  separation  into  at  least  two 
different  ownerships  of  the  factories  and  businesses  then 
owned  and  operated  by  the  Union- American  Cigar  Company. 

Fifth:  The  American  Cigar  Company.66  This  com- 
pany controlled  in  1910,  13.36  percent  of  the  cigar  business 
of  the  country.  Among  the  companies  held  by  it  was  the 
Federal  Cigar  Company.  Through  the  Havana  Tobacco 
Company,  it  controlled  24  percent  of  the  total  cigar  produc- 
tion in  Cuba,  46  percent  of  the  total  cigar  exportation  from 
Cuba;  and  38  percent  of  the  cigar  exportation  from  Cuba 
to  the  United  States.  It  also  owned  the  Federal  Cigar  Com- 
pany. The  American  Cigar  Company  was  dissolved:  (a) 
By  selling  to  the  American  Tobacco  Company  for  cash  the 
stock  it  held  of  the  Puerto  Rican-American  Tobacco  Com- 
pany which  was  engaged  in  cigar  and  cigarette  making  in 
Puerto  Rico.  The  price  paid  was  $350  per  share  or  $2,301,- 

« 191  Fed.  Rep.  421. 
"Ibid.,  421-2. 


130  Trust  Dissolution 

600;  (b)  By  selling  to  the  American  Tobacco  Company,  all 
the  stock  of  the  Federal  Cigar  Company  for  $3,965,616; 
(c)  By  disposing  of  all  interests  in  the  American  Stogie 
Company  when  the  latter  company  dissolved. 

The  stocks  and  securities  owned  or  acquired  by  the 
American  Tobacco  Company  as  has  been  set  forth,  either 
by  purchase  or  as  dividends  from  other  accessory  defend- 
ants, were  distributed  at  the  execution  of  decree ;  the  distri- 
bution of  the  rest  was  deferred.  The  securities  immediately 
distributed  included  the  following  classes :  67  The  preferred 
stock  of  the  American  Snuff  Company;  the  common  stock 
of  the  American  Snuff,  George  W.  Helme,  Weyman  and  Bru- 
ton,  McAndrews  and  Forbes,  and  J.  S.  Young  companies ; 
the  stock  of  the  Conley  Foil,  Johnston  Tin  Foil  and  Metal, 
United  Cigar  Stores,  R.  J.  Reynolds  Tobacco,  British-Amer- 
ican Tobacco,  Puerto  Rican-American  Tobacco  companies ; 
and  whatever  was  received  from  the  American  Stogie  Com- 
pany upon  its  dissolution.  These  securities  had  a  book 
value  of  $35,011,865.03  and  an  earning  capacity  of  $9,860,- 
410,  or  about  28  percent,  in  1910.  The  book  value  was  much 
less  than  the  real  value. 

The  deferred  disposition  of  stocks,  distributed  in  a  like 
manner,  was  to  be  accomplished  by  January  1,  1915.  It 
included  the  following  securities:  the  preference  shares  of 
the  British- American  Tobacco  Company ;  ordinary  shares  of 
the  Imperial  Tobacco  Company;  bonds  of  United  Cigar 
Stores  Company;  and  the  preferred  stocks  of  McAndrews 
and  Forbes  Company.  While  these  securities  remained  in 
possession  of  the  American  Tobacco  Company,  the  owners 
were  enjoined  from  voting  them,  or  from  gaining  them  by 
foreclosure  proceedings. 

The  most  important  provision  of  the  dissolution  plan  was 
the  division  of  the  manufacturing  assets  and  business  of  the 
American  Tobacco  Company  with  two  new  corporations  or- 
ganized for  this  purpose.68  To  these  new  corporations,  the 
Liggett  and  Myers  Tobacco  Company  and  the  P.  Lorillard 
Company,  were  conveyed  factories,  plants,  brands,  busi- 


"191  Fed.  Rep.  422-3. 
W191  Fed.  Rep.  423. 


The  Dissolution  of  the  American  Tobacco  Company     131 

nesses,  and  capital  stocks  of  tobacco  manufacturing  cor- 
porations. The  corporations,  which  were  named,  were  "to 
include  proper  and  adequate  storage  houses,  leaf  tobacco, 
and  other  materials  and  supplies,  provisions  for  book  ac- 
counts, including  in  each  case  a  ratable  proportion  of  the 
cash  held  by  the  American  Tobacco  Company  on  December 
31,  1910,  so  that  each  of  the  new  corporations  will  be  fully 
equipped  for  the  conduct  of  the  business  of  manufacturing 
and  dealing  in  tobacco."  69 

At  this  time  the  American  Tobacco  Company  had  out- 
standing $52,882,650  of  6  percent  bonds,  $51,354,100  of  4 
percent  bonds,  $78,689,100  of  6  percent  preferred  stock,  and 
$40,242,400  of  common  stock.70  It  had  also  a  surplus  of 
$61,119,991.63  which  would  be  further  increased  by  the 
earnings  for  the  year  1910,  but  from  this  surplus  would  be 
subtracted  the  $35,011,865,  the  book  value  of  the  securities 
to  be  immediately  distributed  as  above  provided. 

In  dividing  the  assets  with  the  new  companies  the  value 
of  the  tangible  and  intangible  assets,  such  as  brands,  good 
will  and  trade  marks,  was  figured  separately.  For  each  of 
the  new  corporations  the  annual  earnings,  based  upon  the 
year  1910,  should  be  11.02  percent  on  both  kinds  of  assets. 
The  division  among  the  three  companies  was  as  follows :  71 


Tangible 
As  sets 

Intangible 
Assets 

Total 

Earning 
Capacity 

Liggett  &  Myers  

.  .  .     $30,607,261 

$36,840,237 

$67,447,499 

11  02% 

P.  Lorillard  

28,091,748 

19,460,752 

47,552,501 

11  02% 

American.  . 

53,408.498 

45,023.974 

98.432.473 

11.55% 

The  capitalization  of  the  new  organizations  was  as  fol- 
lows:72 

Liggett  &  Myers  P.  Lorillard  Total 


7%  Bonds 

$15  507  837 

$10,933  488 

$26  441  325 

5%  Bonds  .        .    . 

15,059,589 

10,617,461 

25  677,050 

7%  Preferred  Stock  

15,383,719 

10,845,981 

26,229,700 

Common  Stock  

.  .  .    .         21,496,354 

15,155,571 

36,651,925 

$67,447,499      $47,552,501     $115,000,000 
»191  Fed.  Rep.,  p.  424. 

70  Ibid.,  p.  424-7. 

71  Ibid.,  p.  425. 
"Ibid.,  p.  426. 


132  Trust  Dissolution 

All  the  above  securities  of  the  new  corporations  were 
turned  over  to  the  American  Tobacco  Company  as  the  pur- 
chase price  for  the  properties  and  business  received.  Of 
these  securities  the  common  stocks  were  required  to  be  sold 
at  once  for  cash  to  the  common  stockholders  of  the  American 
Company  in  proportion  to  their  individual  holdings.  Three 
years  were  allowed  to  retire  the  bonds  during  which  time 
they  were  to  be  deposited  with  the  Guaranty  Trust  Com- 
pany of  New  York.  Each  6  percent  bond  holder  of  the 
American  Tobacco  Company  was  to  be  offered  $120  cash 
for  half  of  his  bonds,  and  for  the  other  half,  the  7  percent 
bonds  at  par  of  the  new  companies.  Each  4  percent  bond 
holder  was  to  be  offered  $96  in  cash  for  half  of  his  bonds, 
and  for  the  other  half,  the  5  percent  bonds  of  the  new  com- 
panies. Each  preferred  stockholder  of  the  American  was 
also  to  be  offered  the  privilege  of  exchanging  one-third  of 
his  preferred  stock  at  par  for  7  percent  preferred  stock  of 
the  new  companies. 

The  effect  of  these  changes  was  to  pay  off  the  entire 
bonded  indebtedness  ($104,236,750)  of  the  American  com- 
pany and  reduce  its  assets  accordingly.  All  its  remaining 
outstanding  securities  were  its  preferred  ($52,4*159,400)  and 
common  stock  ($40,260,400).  As  provided  in  the  decree 
the  preferred  stock  was  given  full  voting  rights  so  that  the 
twenty-nine  defendants  would  be  deprived  of  a  majority  vote. 

To  insure  competitive  conditions  despite  the  common 
ownership  of  stock  and  the  unequal  distribution  of  the  to- 
bacco business,  the  court  relied  upon  certain  restraining 
provisions  of  the  decree.73  (a)  The  defendants  were  en- 
joined from  forming  any  combination  similar  to  the  one  de- 
clared illegal,  and  from  entering  agreements  or  covenants, 
either  foreign  or  domestic,  with  companies  or  individuals, 
similar  to  those  rescinded  by  the  decree,  (b)  The  fourteen 
companies  were  enjoined  without  reference  to  time  from  (1) 
placing  the  stocks  of  two  or  more  of  them  in  a  voting  trust ; 
(2)  having  a  buying  or  selling  agency  in  common  with  an- 
other company;  (3)  doing  business  secretly  under  any  other 
name;  (4)  refusing  to  sell  goods  to  jobbers  in  certain  cases; 
73 191  Fed.  Rep.  428-30. 


The  Dissolution  of  the  American  Tobacco  Company    133 

(5)  conveying  the  property  or  business  of  any  one  of  them 
to  any  other;  (6)  making  any  agreement  relating  to  price 
of  leaf  tobacco  or  its  products,  apportionment  of  business, 
jobbing  agreements,  and  common  officers  or  clerical  forces, 
between  two  or  more  companies,  (c)  For  a  period  of  five 
years,  the  same  companies  were  enjoined  from  (1)  having 
common  officers,  directors,  or  agents  for  the  purchase  or 
sale  of  goods;  (2)  acquiring  the  stocks  or  property  of  any 
of  the  companies;  (3)  extending  financial  aid  to  them,  (d) 
For  a  period  of  three  years  the  twenty-nine  individual  de- 
fendants were  enjoined  from  increasing  their  individual  stock 
holdings  in  any  of  the  fourteen  companies,  except  one  for- 
eign company,  but  it  was  provided  that  any  one  of  the  de- 
fendants could  acquire  the  stocks  held  in  any  of  the  com- 
panies by  other  defendants,  or  in  case  of  death  from  their 
estates.74 

The  chief  problems  presented  in  the  disintegration  and 
reorganization  of  the  tobacco  combination  were  two.  The 
first  was,  as  far  as  was  practicable,  to  eliminate  the  collective 
control  of  the  twenty-nine  individual  defendants  from  the 
new  companies.  This  problem  was  disposed  of  by  several 
measures:  Voting  rights  were  conferred  upon  the  preferred 
stocks ;  the  common  stockholders  of  the  American  Tobacco 
Company  were  required  to  purchase  with  cash  the  common 
stock  of  the  new  companies  organized;  the  preferred  stock- 
holders of  the  American  Company  were  allowed  attractive 
exchanges  of  their  stock  for  the  stock  of  the  new  companies ; 
the  preferred  stocks  and  other  securities  held  by  the  Ameri- 
can were  to  be  disposed  of  either  at  once  or  by  1915;  and 
to  decrease  the  monetary  influence  of  the  American  its  bonded 
indebtedness  was  all  to  be  paid,  the  bond  holders  being 
induced  to  exchange  the  bonds  for  the  securities  of  the  new 
companies  at  more  favorable  rates.  The  second  problem 
was  the  distribution  of  the  business  of  the  combination  in 
such  a  way  as  to  make  no  part  taken  over  by  each  concern 
monopolistic.  This  was  solved  by  limiting  the  business  of 
each  concern  to  approximately  one-third  of  the  total  busi- 
ness in  any  branch  of  the  trade.  The  previous  concentra- 
74 191  Fed.  Rep.  430. 


134  Trust  Dissolution 

tion  of  manufacture,  the  extraordinary  development  of  single 
brands  and  the  difference  in  their  profitableness  made  this 
distribution  the  most  difficult  feature  of  the  disintegration. 

In  October,  1911,  by  privilege  of  the  court,  the  National 
Cigar  Leaf  Tobacco  Association,  the  Cigar  Manufacturers' 
Association,  and  the  Independent  Tobacco  Salesmen's  Asso- 
ciation through  their  counsel,  Louis  D.  Brandeis  and  Felix 
H.  Levy,  submitted  objections  to  the  plan  of  dissolution 
filed  by  the  American  Tobacco  Company.75 

While  this  plan  was  afterwards  modified  in  some  parts 
the  chief  objections  raised  by  these  independents  remained. 
The  independents  claimed  that  the  plan  would  result  "in 
legalizing  monopoly  instead  of  restoring  competition.  Its 
effects  *  *  *  would  be  more  injurious  than  the  continuance 
of  the  present  illegal  monopoly.  There  are  five  fundamental 
defects  in  the  plan,  each  so  serious  that  it  forms  alone  a 
sufficient  ground  for  the  rejection  of  the  plan. 

"First  (Community  of  Interest).  The  plan  proposes  to 
divide  the  main  properties  of  the  trust  among  several  cor- 
porations legally  distinct,  but  to  distribute  the  stock  in 
these  several  corporations  pro  rata  among  common  stock- 
holders of  the  American  Tobacco  Company.  No  plan  can 
be  effective  to  restore  competition  which  does  not  include 
as  an  essential  condition  a  provision  that  the  separate  cor- 
porations or  segments  which  are  to  carry  forward  the  busi- 
ness of  the  trust  shall  at  the  outset  and  for  a  limited  period 
thereafter,  be  owned  by  absolutely  distinct  groups  of  indi- 
viduals." 76  While  the  twenty-nine  individual  defendants 
were  to  have  a  smaller  control,  the  independents  claimed 
"that  a  legal  majority  of  the  stock  of  the  corporation  is  not 
essential  to  actual  control.  A  small  minority  may  control ; 
and  as  the  same  individuals  would  at  the  outset  select  the 
directors  and  the  officers  of  each  of  these  colorable  com- 
petitors it  is  certain  that  the  officers  and  directors  of  the 
several  companies  would  be  friendly  if  not  in  fact  iden- 

76  Hearings  Before  Committee  on  Interstate  Commerce,  United  States 
Senate,  62nd  Congress,  2nd  Sess.,  1911-1912,  pp.  315-350.  Hereafter 
referred  to  as  Hearings. 

"  Op.  Cit.,  Hearings,  pp.  314-15. 


The  Dissolution  of  the  American  Tobacco  Company     135 

tical."  77  They  held  that  not  only  the  twenty-nine  defend- 
ants, but  all  who  shared  in  the  distribution  should  be  en- 
joined from  acquiring  stock  in  the  other  companies.  It 
should  be  remembered  that  the  directors  and  four  others  to- 
gether owned  77  percent  of  the  common  stock  and  that  ten 
men,  six  of  whom  were  directors,  held  63  percent.78  The  Su- 
preme Court  had  also  said  that  "a  mere  decree  forbidding 
stock  ownership  by  one  part  of  the  combination  in  another 
part  or  entity  thereof,  would  afford  no  adequate  measure  of 
relief."  79  The  following  table  shows  the  defendants'  per- 
centage of  control  after  the  dissolution: 


DISTRIBUTION  OF  THE   BUSINESS  OF  THE  TOBACCO 
COMBINATION  8° 


Capital          Defendants' 

and          Percentage  of 

Company 

Surplus            Control 

American  

$138,611,344     35.16 

Liggett  &  Myers  

67,447,499     40.67 

P.  Lorillard  

47,552,501     40.76 

British-  American  

36,000,000     34.66 

American  Snuff  

17,535,938     38.65 

R.  J.  Reynolds  

9,541,322     37.53 

United  Cigar  Stores  

9,000,000     37.65 

Bruton  &  Weyman  

8,000,000     28.44 

G.  W.  Helme  

8,000,000     28.44 

McAndrews  &  Forbes  

5,714,148     39.77 

Puerto  Rican-American  

2,357,562     45.31 

J.  S.  Young  

2,000,000     43.87 

Union-  American  

2,517,740     24.65 

Conley  Foil  

1,215,321     33.88 

R.  P.  Richardson,  Jr.  &  Co  

500,000     None 

Hernsheim  

400,000     None 

Johnston  Tin  Foil  and  Metal  

400,000     33.73 

Total $356,393,375 

To  this  objection  of  the  independents  the  Circuit  Court 
entrusted  with  dissolution  said:    "The  main  objection  to  the 

77  Op.  Cit.,  Hearings,  p.  316. 

78  Op.  Cit.,  Hearings,  Part  I,  p.  18. 

79  221  U.  S.  186. 

Political  Science  Quarterly,  V.  128,  p.  265. 


136  Trust  Dissolution 

proposed  plan,  an  objection  found  in  every  document  filed 
by  those  who  were  given  permission  to  be  heard  and  which 
seemed  to  be  principally  relied  on  by  those  who  spoke,  is 
what  is  referred  to  as  'Common  stockholding.'  For  instance, 
under  the  plan  two  new  companies,  'Lorillard'  and  'Liggett 
and  Myers'  will  be  formed  out  of  the  American,  which  will 
itself,  thus  reduced  in  size,  continue  in  existence.  The  same 
individuals,  the  present  1,800  or  more  common  stockholders 
of  the  American,  will  hold  the  entire  common  stock  of  each 
of  the  other  companies.  A  similar  condition  will  exist  with 
some,  at  least,  of  the  other  companies.  It  is  contended  that, 
although  under  such  circumstances  there  may  be  potential 
competition,  no  real  competition  can  exist.  With  this  argu- 
ment or  the  reply  to  it,  it  seems  to  me  this  court  is  not  con- 
cerned. In  two  recent  cases  (Northern  Securities  and  Stand- 
ard Oil)  the  Supreme  Court  *  *  *  in  the  disintegration  left 
the  stock  of  the  separate  entities  into  which  the  group  was 
split  in  the  hands  of  the  same  body  of  individual  stock- 
holders. Since  there  was  no  disapproval  of  this  method  of 
disintegration  indicated  in  either  opinion  it  would  seem  that 
the  question  whether  or  not  common  stockholding  is  'repug- 
nant to  the  law'  *  *  *  has  been  settled  for  this  Court  by  con- 
trolling authority."  81 

The  second  objection  of  the  independents  was  that  it 
created  a  few  dominating  concerns.  "The  plan  provides  for 
a  division  (generally)  among  only  three  huge  corporations 
of  nearly  all  the  properties  now  held  by  the  trust.  *  *  * 
The  three  or  four  concerns  formed  to  carry  forward  the  main 
business  of  the  Tobacco  Trust  would  together  be  in  a  posi- 
tion to  crush  the  independents  even  more  effectually  than  has 
been  done  in  the  past."  82  The  relative  position  of  the  com- 
panies in  the  different  branches  is  shown  by  the  table  below, 
which  gives  the  distribution  according  to  the  percentage 
of  volume. 

The  cigarette  business  of  the  trust,  which  was  carried  on 
in  seven  separate  factories,  was  divided  into  three  companies. 
The  independents  held  that  it  should  be  divided  among  seven. 

81 191  Fed.  Rep.  375-6. 
M  Hearings,  p.  316. 


IH.D 


Dissolution  of  the  American  Tobacco  Company     137 

Cigar-   Smok-  Fine  Little 

Company  ettes       ing       Plug        Cut       Snuff    Cigars   Cigars 


American 37.11     33.08     25.32      9.94     6.06     15.43 

Liggett  &  Myers 27.82     20.05     33.83     44.61     43.78 

P.Lorillard ..15.27     22.82      3.73     27.80     5.72    33.84 

R.  J.  Reynolds 2.66     18.07     

Union  American 1 . 58     

G.  W.  Helme 40.88     

American  Snuff 32. 05     

Bruton  &  Weyman 29.25     

AH  Independents 19.80    21.39     19.05    20.65      7.82    86.64      6.95 

They  also  charged  that  the  distribution  of  the  cigarette 
brands  was  such  as  to  give  the  trust  companies  dominance 
in  this  branch  of  the  trade.  The  smoking  tobacco  business 
of  the  trust,  which  was  carried  on  in  twelve  separate  fac- 
tories, was  divided  among  four  concerns.  The  independents 
claimed  that  it  should  have  been  divided  among  twelve  and 
they  made  the  same  charge  of  improper  distribution  of 
brands.  The  plug  tobacco  business  of  the  trust,  carried  on 
in  twelve  factories,  was  divided  among  four  companies 
whereas  it  should  have  been  among  twelve.  The  same  charge 
as  to  distribution  of  brands  was  repeated.  The  little  cigar 
business  of  the  trust,  carried  on  in  seven  separate  factories, 
was  divided  among  three  concerns.  It  should  have  been  di- 
vided among  seven.  The  snuff  business  of  the  trust,  car- 
ried on  in  more  than  three  factories,  was  divided  among  three 
companies  but  should  have  been  divided  among  six.  The 
trust  controlled  90  percent  of  the  licorice-paste  business 
which  was  divided  among  two  companies.  It  should  have 
been  divided  among  four  as  there  was  only  one  independent 
competitor.  It  was  also  charged  that  "the  control  by 
the  trust  of  the  licorice-paste  business  gave  it  control  of  the 
chewing-tobacco  business,  as  chewing  plug  cannot  be  made 
without  licorice;  and  its  control  of  the  licorice-paste  busi- 
ness of  the  whole  country  is  fortified  by  its  control  of  the 
raw  material,  licorice  root.  The  plan  makes  no  provision 
for  breaking  the  trust's  monopoly  of  licorice  root."  83  The 
tin-foil  business  of  the  trust  was  divided  between  two  plants 

M  Hearings,  p.  318.  These  three  companies  controlling  the  trust  busi- 
ness in  this  trade  had  all  been  found  guilty  of  monopolizing  licorice  paste 
and  fined  in  1907.  See  212  U.  S.  585. 


138  Trust  Dissolution 

while  the  independents  wanted  it  divided  among  five  separate 
companies. 

To  this  second  objection  of  the  independents  the  Circuit 
Court  said :  "Manifestly  the  minuter  the  fragments  into  which 
the  old  combination  is  split,  and  the  more  they  are  prohibited 
from  conducting  business  as  other  companies  are  free  to 
conduct  it,  the  less  will  be  their  ability  to  compete  with  such 
other  companies.  This  whole  line  of  argument  deals  with 
the  economics  of  the  tobacco  business.  No  doubt  the  novel 
problem  presented  to  this  court  is  connected  with  questions 
of  economics  as  well  as  with  questions  of  law.  But  this  is 
a  court  of  law  not  a  Commerce  Commission,  and  the  legal 
side  of  the  proposition  would  seem  to  be  the  controlling 
one."  84 

The  third  objection  to  the  plan  was  that  the  three  com- 
panies among  which  the  manufacturing  properties  of  the 
trust  were  divided  should  be  "each  completely  equipped  for 
the  conduct  of  a  large  tobacco  business.  No  independent 
concern  is  now  completely  equipped  for  the  conduct  of  a 
large  tobacco  .business,  or  indeed  completely  equipped  to  do 
any  tobacco  business  covering  all  the  main  branches  of  the 
tobacco  trade."  85  The  independents  claimed  that  the  impos- 
sibility of  fair  competition  is  due  to  the  cumulative  effect 
of  three  advantages  which  the  trust  secured  through  its 
illegal  combination:  (1)  The  large  percentage  of  the 
business  in  each  department  which  the  trust  companies  re- 
ceived;  (£)  their  business  extends  to  all  departments  of  the 
tobacco  trade;  (3)  the  control  of  indispensable  brands  by 
means  of  which  the  dealers  would  be  compelled  to  give  pref- 
erence to  its  other  products  over  those  of  the  independents. 
These  brands  would  also  give  large  profits  with  which  com- 
petitors could  be  crushed. 

Fourth :  86  Many  restraints  on  unfair  competition  were 
asked  for  by  the  independents,  as  well  as  by  the  Government, 
to  make  the  dissolution  more  effective.  Some  of  these  were 
granted  and  the  rest  wholly  or  in  part  refused.  The  inde- 

84 191  Fed.  Rep.  376. 
86  Hearings,  p.  319. 
88  Ibid.,  p.  320. 


The  I 


Dissolution  of  the  American  Tobacco  Company     139 

pendents  contended  that  for  a  limited  time  they  should  have 
more  than  ordinary  protection.  The  request  that  the  twenty- 
nine  defendants  be  enjoined  from  increasing  their  holdings 
was  granted  for  a  period  of  three  years  but  the  special  pro- 
vision allowing  the  defendants  to  purchase  each  other's 
stocks  made  this  less  effective.  The  request  for  the  liberty 
of  applying  to  the  court  for  relief  in  case  of  alleged  violation 
of  the  injunctions  was  also  denied.  It  may  be  noted  that  the 
following  petitions  supported  by  the  Government  were  re- 
fused by  the  court:  that  no  company  established  by  the 
decree  should  have  more  than  40  percent  of  the  output  of 
any  one  branch;  that  the  giving  of  rebates  or  other  special 
inducements  be  prohibited ;  that  espionage  on  the  business  of 
a  competitor,  bribery  of  employees  of  a  competitor,  or  ob- 
taining information  from  revenue  officials  be  prohibited ; 
that  independents  be  allowed  to  appeal  to  the  courts  if  the 
injunctions  were  violated;  that  the  stock  of  the  United  Cigar 
Stores  Company  be  sold  to  others  than  the  twenty-nine  de- 
fendants ;  that  the  Government  be  given  the  right  to  reopen 
the  case  within  five  years  to  obtain  other  relief  in  case  the 
dissolution  did  not  prove  satisfactory. 

Fifth :  The  decree  left  the  United  Cigar  Stores  Company 
intact  and  passed  it  over  as  a  complete  entity  to  the  common 
stock  holders  of  the  American  Tobacco  Company.87  The 
independents  asked  that  this  company  growing  up  through 
the  illegal  operations  of  the  trust  be  separated  into  ten  sepa- 
rate corporations  with  separate  group  of  owners  for  each. 
Its  strong  bond  of  union  with  the  American  and  its  illegal 
practices  were  a  menace  to  the  independent  manufacturers 
and  the  retailers.  The  British-American  and  Reynolds  To- 
bacco companies  were  likewise  given  wholly  into  the  same 
hands.88  Felix  H.  Levy,  arguing  for  the  independents,  said, 
"The  United  Cigar  Stores  Company  has  been  the  most  power- 
ful agency  of  the  combination  in  obtaining  the  control  of 
the  tobacco  industry.  Through  the  hundreds  of  stores  which 
that  company  operates,  and  by  virtue  of  the  special  trade 
advantages  given  to  it  by  its  owner,  the  American  Tobacco 

"Hearings,  p.  321. 
88  Hearings,  p.  349. 


140  Trust  Dissolution 

Co.,  and  by  exercise  of  the  most  ruthless  and  cruel  practices 
in  driving  out  retail  opposition  and  obstructing  the  avenues 
of  distribution  on  the  part  of  independent  manufacturers, 
this  company  has  proven  the  most  effectual  of  all  the  bar- 
riers to  the  entry  of  others  into  the  tobacco  trade.  If  the 
mild  expedient  of  merely  separating  this  company  from  the 
combination  but  of  leaving  its  control  in  the  hands  of  the 
same  men  who  have  heretofore  controlled  the  combination, 
if  the  rose-water  remedy  of  gently  setting  aside  this  vast 
agency  of  destruction  from  its  former  control  by  the  com- 
bination and  placing  it  in  the  hands  of  the  same  men  who 
control  that  combination,  is  to  be  adopted,  it  is  no  exaggera- 
tion to  say  that,  in  this  respect  at  least,  the  decree  of  the 
Supreme  Court  of  the  United  States  might  as  well  have  been 
a  blank  piece  of  paper."  89  As  to  the  United  Cigar  Stores 
Company,  the  Attorney  General  said,  "there  is  one  feature 
of  this  combination  which,  in  my  personal  experience,  has 
been  the  subject  of  more  complaints  than  all  the  rest  put 
together.  That  is  the  United  Cigar  Stores  Company.  The 
connection  of  that  organization  with  this  combination  had 
given  the  combination  the  greatest  opportunity  to — I  do 
not  know  that  I  can  say  to  injure,  but  certainly  to  harass, 
the  domestic  trade  and  to  incense  a  larger  number  of  people 
than  anything  else  they  have  done,  because  they  have  gone  in 
and  reached  the  poor  corner  dealer,  bought  the  house  over 
his  head  and  when  his  lease  came  to  an  end,  instead  of  his 
being  able  to  renew  it  as  formerly,  he  finds  that  he  can  not 
get  a  renewal  of  the  lease,  that  it  has  been  taken  by  the 
United  Cigar  Stores  Co.  It  was  the  hand  of  the  trust,  it 
reached  out  and  touched  the  little  man  who  has  nobody  to 
protect  him.  I  have  on  my  files  in  Washington  letters — my 
files  are  full  of  letters  and  complaints  running  down  to 
within  the  last  few  days,  and  I  do  think  if  that  concern  can 
be  cut  loose, — it  would  do  more  to  make  the  rest  of  the 
plan  acceptable  to  the  people  of  this  country  than  anything 
else  that  could  be  done  *  *  *  ,  they  are  a  great  big  organi- 
zation to-day.  They  have  something  like  a  thousand  stores, 
or  seven  hundred  or  eight  hundred,  at  least,  scattered 
88  Stevens,  Industrial  Combinations  and  Trusts,  pp.  505-6. 


The  Dissolution  of  the  American  Tobacco  Company 

throughout  the  country,  and  they  are  the  most  potent  com- 
petitor of  the  small  dealer  in  the  United  States.  *  *  * 

"Therefore,  I  say,  it  is  entirely  within  your  honor's  pow- 
er, whether  you  choose  to  exercise  it  or  not,  to  say  as  a  con- 
dition of  this  plan :  You  .have  got  to  get  rid  of  them  and 
turn  them  loose  so  that  that  concern  will  no  more  have  any 
connection  with  the  American  Tobacco  Co.,  or  with  any  of 
the  distributive  companies  or  with  any  of  these  individuals 
who  have  built  up  this  combination  through  so  many 
years."  90 

Many  others  have  discussed  the  effectiveness  of  this  dis- 
solution. Mr.  Roosevelt  says  it  "practically  leaves  all  the 
companies  still  substantially  under  the  control  of  the  twen- 
ty-nine original  defendants.  Such  a  result  is  lamentable  from 
the  standpoint  of  justice.  The  decision  of  the  Circuit 
Court,  if  allowed  to  stand,  means  that  the  Tobacco  trust 
has  merely  been  obliged  to  change  its  clothes,  that  none  of 
the  real  offenders  have  received  any  punishment,  while,  as 
the  New  York  Times,  a  pro-trust  paper,  says,  the  Tobacco 
concerns  in  their  new  clothes,  are  in  a  position  of  'ease  and 
luxury'  and  'immune  from  prosecution  under  the  law.' 
Surely,  miscarriage  of  justice  is  not  too  strong  a  term  to 
apply  to  such  a  result  when  considered  in  connection  with 
what  the  Supreme  Court  said  of  this  Trust."  91  Attorney 
General  Wickersham  says  the  "plan,  with  the  restrictive 
provisions  embodied  in  the  decree,  will  accomplish  a  recrea- 
tion of  lawful  conditions,  and  being  so  convinced,  I  opposed 
the  efforts  of  outsiders  to  inject  themselves  into  the  situa- 
tion, and  to  delay  or  prevent  the  carrying  out  of  the  plan."  92 
Samuel  Untermyer  characterized  the  dissolution  as  a 
"farce."  93 

Some  results  of  this  dissolution  are  known.  When  the 
order  was  given  by  the  Supreme  Court  to  dissolve  the  com- 
pany, the  stock  of  the  American  Tobacco  Company  fell  to 
$690  per  share ;  but  after  the  decision  of  the  Circuit  Court  as 
to  the  kind  of  disintegration  which  was  to  take  place,  this 

90  Stevens— Industrial  Combinations  and  Trusts,  pp.  483-4. 

"  Outlook,  V.  99,  p.  711. 

n  Hearst's  Magazine,  V.  21,  p.  1439. 

MIbid.,  p.  1439. 


Trust  Dissolution 

common  stock  rose,  within  a  few  weeks,  to  as  high  a  price 
as  ever  attained  in  the  history  of  the  company,  with  the 
exception  of  a  single  day,  $529  per  share.94  This  was  fol- 
lowing four  years  of  litigation  which  cost  about  $22,000,000 
as  claimed  by  the  defendants.95  Louis  D.  Brandeis,  then 
chief  counsel  for  the  independents,  now  a  member  of  the 
Supreme  Court,  declared  that  "a  combination  heretofore 
illegal  has  been  legalized.  The  value  of  that  legalization  is 
shown  by  the  high  market  value  of  the  common  stock  *  *. 
At  a  time  when  the  business  of  the  country  is  depressed, 
when  railroad  shares  and  other  industrial  stocks  are  rela- 
tively low  *  *  *.  Surely  other  trusts  would  welcome  such 
an  'immunity  bath.'  "  96  That  the  dissolution  was  a  failure  be- 
cause the  price  of  stock  immediately  rose  does  not  necessarily 
follow.  The  stocks  were  somewhat  depressed  during  the 
period  of  litigation  and  the  fact  that  a  surplus  of  more  than 
$61,000,000  was  accumulated  in  less  than  a  decade  in  addi- 
tion to  large  dividends  gave  rise  to  the  hope  of  a  freer  dis- 
tribution of  earnings,  even  if  in  the  aggregate  the  earnings 
were  less  in  the  future. 

Much  more  definite  evidence  concerning  the  results  of 
the  dissolution  are  obtained  from  part  3  of  the  report  of 
the  Bureau  of  Corporations  on  the  Tobacco  Industry,  pub- 
lished in  1915.  This  report  deals  with  prices,  costs  and 
profits  in  the  tobacco  industry  for  the  period  of  the  combi- 
nation and  for  the  two  years  which  followed  the  dissolution. 
The  report  shows  that  the  successor  companies  among  which 
the  business  of  the  combination  was  divided  controlled  of  the 
total  output  in  the  various  branches  of  the  tobacco  busi- 
ness in  1913,  as  compared  with  the  combination  in  1910,  less 
in  smoking  and  in  fine-cut  tobacco,  more  in  cigarettes  and 
in  snuff,  and  about  the  same  in  plug  and  in  little  cigars.97 
There  was  in  most  branches  a  more  equal  distribution  of 
business  among  the  successor  companies  in  1912  and  1913 
than  there  was  directly  after  the  dissolution.  In  the  snuff 
branch  each  of  the  three  successor  companies  retained  prac- 

94  Hearings,  Senate  Interstate  Commerce  Committee,  p.  1368. 
08 191  Fed.  Rep.  397.    M  Hearst's  Magazine,  V.  21,  pp.  1440-1. 
97  Report  of  Bureau,  Part  III,  p.  11. 


The  Dissolution  of  the  American  Tobacco  Company     143 

tically  a  monopoly  in  its  respective  types  and  to  a  large 
extent  each  a  distinct  sales  territory.98  This  branch  was 
also  characterized  by  unusually  high  profits  and  small  ad- 
vertising and  selling  costs,  with  no  apparent  competition." 
Aside  from  the  cost  of  leaf  tobacco  which  continued  to  rise 
rapidly  in  price,  the  report  shows  that  the  factory  costs  of 
the  successor  companies  were  not  materially  different  from 
those  of  the  combination  in  1909-10,  but  that  increases  in 
selling  costs  after  the  dissolution  were  general,  resulting 
from  the  duplication  of  selling  organizations  and  increased 
overhead  expenses  following  the  division  of  the  business. 
There  was  a  marked  increase  in  the  advertising  expenditure. 
In  1910  this  item  was  $11,000,000  and  in  1913  it  was  $23,- 
000,000.100 

The  aggregate  earnings  of  the  successor  companies  in 
1913  were  slightly ,  less  than  those  of  the  combination  in 
1910,  though  the  volume  of  sales  was  larger.  The  earnings 
on  the  book  value  of  the  investment  of  the  successor  com- 
panies averaged  12.5  percent  in  1912  and  11.3  percent  in 
1913,  but  the  profit  accruing  to  the  common  stock  was  at  a 
much  higher  rate.101  Based  upon  the  book  value,  the  com- 
mon stock  of  the  following  companies  received  in  1913  these 
respective  earnings:  the  American  14.6  percent,  Liggett  and 
Myers  18.4  percent,  Lorillard  17.6  percent,  R.  J.  Reynolds 
16.4  per  cent.  These  rates  would  be  much  higher  if  the 
actual  cost  of  the  investment  instead  of  the  book  value  was 
taken.  On  this  basis  the  earnings  of  the  successor  com- 
panies averaged  14.6  percent  in  1913  as  compared  with  17.9 
percent  for  the  combination  in  1908  and  17  percent  in 
191 0.102  The  earnings  of  the  successor  companies  were  in 
general  comparatively  low  in  those  branches  or  types  in 
which  competition  for  business  was  most  pronounced,  and 
very  high  in  those  in  which  competition  was  slight. 

There  have  been  no  material  changes  in  prices  either  to 
the  jobbers  or  consumers  since  the  dissolution.  Of  110  prin- 


98  Report  of  Bureau,  Part  III,  pp.  14-5. 
89  Ibid. 

100  Ibid.,  p.  18. 

101  - 


Ibid.,  pp.  21-2. 
102  Ibid.,  p.  22. 


144  Trust  Dissolution 

cipal  brands  covering  nearly  every  branch  of  the  trade, 
prices  were  changed  for  only  three.  The  high  profits  taken 
in  conjunction  with  the  practically  unchanged  wholesale  and 
retail  prices  indicate  that  there  has  been  but  little  compe- 
tition in  price.  The  Bureau  attributes  this  in  large  part 
to  the  customary  retail  prices  and  other  peculiar  price-mak- 
ing conditions  of  the  tobacco  trade,  including  statutory  pro- 
visions, which  make  it  impracticable  in  most  cases  to  in- 
crease the  quantity  sold  at  the  customary  price.103 

The  position  of  the  independents  was  not  improved  much 
by  the  dissolution.104  Their  total  output  remained  about 
constant  or  slightly  increased  in  the  plug,  smoking,  fine  cut, 
and  little  cigar  branches,  but  declined  heavily  in  the  cigar- 
ette branch.  The  independents  that  increased  their  business 
were  generally  the  larger  companies  producing  a  varied  line 
of  products,  or  small  companies  with  some  especially  popu- 
lar brand.  On  the  whole  their  profits  were  small  in  com- 
parison with  the  successor  companies,  as  was  true  of  the 
combination.  They  made  a  very  poor  showing  of  profits  in 
the  navy  plug  and  Turkish  cigarettes,  but  had  a  marked  in- 
crease of  profits  in  long-cut  smoking  tobacco,  while  in 
scrap  tobacco  their  profits  were  even  larger  than  those  of 
the  successor  companies.  This  unfavorable  showing  of  prof- 
its among  the  smaller  companies  has  been  attributed  by  the 
Bureau  largely  to  the  higher  factory  costs  due  to  smaller 
scale  operation  and  less  efficient  organization. 

That  the  plan  of  dissolution  for  the  tobacco  trust  was 
defective  in  some  of  its  most  important  principles  is  shown  by 
the  trend  of  later  dissolutions  and  antitrust  legislation.  It 
was  more  effective  than  the  Oil  dissolution  which  was  almost 
a  complete  farce.  The  mere  prohibition  of  interstock 
ownership  was  not  deemed  sufficient  in  this  case.  The  busi- 
ness was  reorganized  and  more  restrictions  placed  upon  the 
defendants,  but  the  control  was  not  divided  so  as  to  restore 
competitive  conditions.  The  most  serious  defect  was  in  the 
distribution  of  the  stocks  and  securities.  While  the  defend- 
ants lacked  a  direct  majority  vote  after  the  dissolution,  their 


108  Report  of  Bureau,  Part  III,  pp.  23-4. 
104  Ibid.,  pp.  25-9, 


The  Dissolution  of  the  American  Tobacco  Company     145 

common  interest  in  all  the  companies  remained,  and  by  a 
slight  enlargement  of  the  "community  of  interest"  a  small 
group  could  maintain  a  controlling  interest  in  the  industry. 
This  was  made  the  more  probable  and  easy  of  accomplish- 
ment by  granting  to  the  defendants  the  privilege  of  exchang- 
ing their  shares  among  themselves  and  thereby  to  perpetu- 
ate their  control.  The  prohibition  of  common  directors  for 
a  period  of  only  five  years  was  another  defect,  which,  how- 
ever, may  be  partly  overcome  by  provisions  of  the  Clayton 
Act.  The  control  of  the  American  Tobacco  Company  over 
the  United  Cigar  Stores  Company  should  have  been  released 
and  the  Government  urgently  plead  for  such  a  provision  in 
the  decree.  The  latter  company  whose  stocks  have  a  market 
value  of  about  $34,000,000  is  a  powerful  factor  in  the  in- 
dustry. The  decree  of  dissolution  was  not  framed  by  the 
court  entrusted  with  the  disintegration,  and  it  is  standing 
evidence,  as  is  the  Oil  dissolution,  of  the  lack  of  adaptation 
on  the  part  of  the  courts  for  handling  the  complex  ad- 
ministrative problems  involved  in  concentrated  industry. 
For  this  task  men  well  trained  in  business  affairs  are  a 
necessity  and  this  was  one  of  the  objects  in  creating  the 
Federal  Trade  Commission.  No  appeal  was  ever  taken  to 
determine  whether  the  final  dissolution  decree  of  the  tobacco 
combination  had  the  approval  of  the  Supreme  Court. 


CHAPTER  V 

DECISIONS    SINCE    1911 

THE  Standard  Oil  and  American  Tobacco  decrees  in 
1911  marked  a  new  epoch  in  the  prosecution  of  trusts. 
The  broader  interpretation  and  wider  application  of  the 
Sherman  law,  as  given  in  those  decisions,  were  soon  applied  to 
other  trusts.  The  vigorous  prosecution  which  followed  re- 
sulted in  more  numerous  applications  of  the  trust  laws.  The 
more  important  applications  will  be  considered  in  this  chap- 
ter and  .the  one  following. 

THE  ELECTRIC  LAMP   COMBINATION  * 

In  1894  the  patents  on  carbon  filament  lamps  expired. 
This  was  the  only  incandescent  lamp  manufactured  and  sold 
on  a  commercial  scale  during  the  next  decade.  In  1896 
the  General  Electric  and  six  other  companies  formed  the 
Incandescent  Lamp  Manufacturers  Association  for  the  pur- 
pose of  fixing  prices,  allotting  business,  and  prescribing  regu- 
lations for  the  manufacture  and  sale  of  carbon  lamps.  Guar- 
antee deposits  were  required  of  the  members  to  insure  ob- 
servance of  the  rules,  and  penalties  were  provided  for  vio- 
lations. During  the  following  five  years,  ten  other  com- 
panies joined  the  combination,  which  also  secured  the  co- 
operation of  the  Westinghouse  Company. 

In  1901  the  National  Electric  Lamp  Company  was  or- 
ganized to  combine  the  lamp  interests.  This  company  ap- 
peared to  be  separate  from  the  General  Electric  Lamp  Com- 
pany, but  a  majority  of  its  stock  was  held  by  the  latter 
through  a  third  party.  The  National  Electric,  with  funds 
provided  by  the  General  Electric,  acquired  many  competing 

1  Stevens,  W.   S.,  The  Electric  Lamp   Combination,  Quart.  Jour,   of 
Econ.,  V.  26,  pp.  594  et  seq. 

146 


Decisions  Since  1911  147 


companies  which  had  failed  to  join  in  1901  or  had  arisen 
afterward.  Agreements  were  secured  also  with  the  West- 
inghouse  Electric  Company  and  with  seven  other  companies 
to  observe  the  fixed  prices  on  carbon  lamps. 

In  1906  the  General  Electric  and  National  Electric  com- 
panies secured  from  German  interests  the  exclusive  right  to 
manufacture  and  sell  in  the  United  States  and  its  posses- 
sions tantulum  and  tungsten  filament  lamps  which  had 
rapidly  come  into  the  foreground.  Patents  covering  the  lat- 
ter were  acquired  in  1909.  In  this  way,  competition  was 
forestalled  in  this  country.  The  companies  at  once  pro- 
ceeded to  monopolize  the  trade  in  carbon  filament  lamps 
upon  which  patents  had  expired.  This  was  done  largely 
through  the  jofcbing  trade.  All  jobbers  and  dealers  were 
required  to  purchase  all  their  carbon  lamps  from  these  com- 
panies in  order  to  be  permitted  to  purchase  tantulum  and 
tungsten  lamps.  The  demand  for  these  lamps  forced  the 
jobbers  and  dealers  to  carry  them,  and  as  a  result  the  inde- 
pendent manufacturers  of  carbon  lamps  found  they  could 
not  compete.  Other  contracts  with  makers  of  lamp  machin- 
ery, tubes,  bulbs,  and  bases,  either  to  sell  their  products  to 
the  combination  exclusively  or  to  sell  at  fixed  prices  greatly 
strengthened  the  power  of  the  combination.  As  a  result  the 
General  Electric  Company  through  its  controlled  companies, 
including  those  held  by  agreement,  came  to  control  97  percent 
of  the  electric  lamp  business  of  the  entire  country.2 

In  1911  a  petition  was  filed  against  the  General  Electric 
Company  charging  a  combination  to  restrain  and  monopolize 
the  manufacture  of  incandescent  electric  lamps.  Later  in 
the  year  a  consent  decree  was  entered.  The  decree  3  or- 
dered that  the  General  Electric  Company  dissolve  its  sub- 
sidiary companies  and  thereafter  conduct  its  busines  under 
its  own  name.  The  decree  also  enjoined  all  license  or  con- 
tract agreements  fixing  prices  and  terms  of  sale;  contracts 
with  manufacturers  of  lamp  machinery,  bulbs,  and  tubing 
requiring  sales  exclusively  tc  the  defendants  or  demanding 
sale  at  prices  lower  than  to  competitors;  making  price  dif- 

2  Stevens,  Quart.  Jour,  of  Econ.,  V.  26,  p.  601. 
•Trust  Laws  and  Unfair  Competition,  1916,  pp.  480  ff. 


148  Trust  Dissolution 

ferentials  on  lamps  of  the  same  quality  and  efficiency ;  com- 
pelling purchasers  to  buy  carbon  lamps  as  a  condition  of 
being  able  to  purchase  tungsten,  tantulum  and  other  lamps, 
or  discriminating  against  any  who  refused  to  do  so ;  offer- 
ing lower  rates  to  customers  of  competitors  than  were  made 
in  the  established  trade;  using  any  patent  to  control  the 
manufacture  and  sale  of  unpatented  lamps. 

THE   DISSOLUTION    OF   THE   POWDER   TRUST 

The  powder  trust  was,  with  the  exception  of  the  Standard 
Oil,  the  oldest  of  the  trusts  dissolved.  Its  interesting  his- 
tory began  in  1872  when  seven  of  the  largest  manufacturers 
of  powder  and  other  explosives  in  the  United  States  formed 
the  Gunpowder  Trade  Association  with  the  avowed  pur- 
pose of  regulating  the  price  and  terms  for  sale  of  explosives 
throughout  the  country.4  The  three  most  influential  com- 
panies were  the  E.  I.  du  Pont  de  Nemours  and  Company, 
the  Hazard  Powder  Company,  and  the  Laflin  and  Rand 
Powder  Company.  At  the  regular  quarterly  meetings  of  the 
association,  or  through  a  chosen  committee  of  five  members, 
the  prices  and  terms  of  sale  and  the  apportionment  of  trade 
and  territory  were  determined  upon  for  the  members  of  the 
association  who  were  bound  to  observe  them  under  penalty 
of  fines.  Though  the  main  agreement  was  changed  from 
time  to  time  this  pooling  combination  retained  a  remarkable 
degree  of  effective  control  for  the  next  thirty  years  before 
a  more  permanent  organization  was  secured. 

In  1875,  the  combination  began  a  ruinous  price  cutting 
campaign  in  the  western  states  for  the  purpose  of  securing 
control  of  the  California  Powder  Works  Company,  and  as 
a  result  the  California  company  was  soon  forced  to  sell 
almost  half  of  its  stock  and  agree  to  limit  its  sales  to  a  stipu- 
lated territory.5  Local  price  cutting  was  authorized  by  the 
association  in  order  to  drive  competitors  out  of  the  markets 

4  Pleadings,  Briefs,  and  Exhibits  in  the  suit  of  U.  S.  vs.  E.  I.  du 
Pont  de  Nemours  and  Company  in  the  U.  S.  C.  C.  for  the  District  of 
Delaware,  No.  280.  In  equity;  Stevens,  W.  S.,  The  Powder  Trust, 
Quart.  Jour,  of  Econ.,  V.  26,  pp.  444-481;  188  Fed.  R«p.  127-153. 

"Amended  Petition  Pleadings,  pp.  16-20. 


Decisions  Since  1911  149 

or  to  force  them  to  come  into  the  association.  It  was  one 
of  the  chief,  if  not  the  chief,  means  used  by  the  powder 
combination  to  eliminate  competition  for  nearly  forty  years.6 
Sometimes  the  losses  resulting  from  price  cutting  were  ap- 
portioned among  the  members.  Several  less  important  com- 
panies were  induced  to  join  the  association  in  1876. 

Between  1878  and  1881,  three  new  independent  companies 
entered  the  gunpowder  trade.  In  the  demoralizing  compe- 
tition that  followed  (1880-5)  the  association  sold  its  explo- 
sives far  below  cost  in  the  territories  of  the  three  companies. 
Rifle  powder  was  sold  as  low  as  $2.25  per  keg  although  in 
other  places  it  was  sold  at  $6.25.7  The  price  of  blasting 
powder  fell  from  $2.75  to  $.80  per  keg  in  the  contested  re- 
gions.8 As  a  result  all  three  companies  were  forced  to  join 
the  new  Association  Agreement  of  1886;  twelve  companies  in 
all  accepted  the  agreement.  Within  the  next  six  months 
prices  of  explosives  practically  reached  the  level  existing 
prior  to  the  formation  of  the  new  companies.  In  addition  to 
the  fundamental  agreement  of  1886  between  the  twelve  com- 
panies, five  supplementary  agreements  were  soon  entered 
into  with  other  companies  for  the  purpose  of  enforcing  the 
regulations  and  prices  of  the  association. 

The  agreement  of  1886  expired  in  1889  and  was  imme- 
diately followed  by  another  almost  identical.9  The  United 
States  as  before  was  divided  into  seven  districts.  A  "Board 
of  Trade"  made  up  of  five  members  was  given  power  to  fix 
and  alter  prices  and  to  settle  grievances.  The  total  sales 
were  divided  among  the  companies  in  direct  proportion  to 
the  yearly  allotments  of  each.  Losses  due  to  authorized 
local  price  cutting  were  to  be  compensated  by  the  payment 
of  money.  The  agreement  included  companies  controlling 
95  percent  of  the  output  of  rifle  powder  and  90  percent  of 
blasting  powder.10  Thus,  the  first  jperiod  of  the  powder  trust 
witnessed  an  effective  combination  of  the  gunpowder  trade. 
The  chief  means  of  attaining  this  control  were  ruinous  local 
price  cutting  and  restrictive  agreements. 

During  the  second  period  of  the  powder  trust  ending  in 

'Amended  Petition  Pleadings,  p.  90. 

T  Ibid.,  p.  29. 

8  Ibid. 

•Stevens,  Quart.  Jour,  of  Econ.,  V.  23,  p.  453. 

10  Ibid. 


150  Trust  Dissolution 

1902,  the  dynamite  trade  was  fully  consolidated  and  closer 
relations  established  between  members  of  the  association.11 
Following  the  agreement  of  1889,  the  prices  of  powder  were 
raised  and  this  brought  three  new  concerns  into  the  gun- 
powder trade.  The  association  started  a  vicious  under- 
selling campaign  against  them.  At  Ooltewah,  Tennessee, 
where  one  of  the  new  companies  was  located,  the  railroad 
agent  was  paid  monthly  for  furnishing  a  weekly  statement  of 
the  powder  shipments  made  by  this  company,  giving  the  name 
of  the  consignee,  number  of  kegs  and  the  destination.12  By 
1896  all  three  companies  had  passed  under  the  control  of 
the  association  and  in  the  same  year  the  association  slightly 
revised  and  renewed  its  agreement  to  which  seventeen  com- 
panies, exclusive  of  the  California  Powder  Works,  sub- 
scribed.13 

Following  the  agreement  of  1896  prices  of  powder  were 
again  advanced  and  again  new  competitors  arose.14  Four 
new  independents  were  organized  prior  to  1902. 15  Each  of 
these  found  itself  at  once  in  destructive  competition  with  the 
combination  which  sold  powder  in  the  contested  fields  as 
low  as  $.70  per  keg.16  Two  of  the  companies  soon  yielded 
to  the  combination,  while  the  other  two  sold  out  in  1902,  the 
leaders  of  the  companies  agreeing  to  keep  out  of  the  busi- 
ness for  a  period  of  twenty  years.  A  number  of  other  agree- 
ments were  entered  into  between  1896  and  1902.  Several  of 
these  were  to  keep  certain  individuals  out  of  the  powder  busi- 
ness. In  one  the  King  Powder  Company  agreed  to  sell  most 
of  its  output  to  the  combination  for  a  period  of  twenty-five 
years.  With  the  aid  of  the  above  agreements  and  acquisi- 
tions the  combination  practically  eliminated  competition  in 
the  blasting  and  the  sporting  powder  trade. 

The  association  secured  control  of  the  dynamite  trade 
during  the  second  period.17  It  became  evident  that  dyna- 

11  Stevens,  Quart.  Jour,  of  Econ.,  V.  23,  pp.  453-469. 

"Ibid., p.  455. 

"Ibid.,  p.  457. 

14  Ibid. 

"  Ibid.,  p.  458. 

"  Ibid. 

"Ibid.,  pp.  462-9. 


Decisions  Since  1911  151 

mite  would  be  a  strong  competitor  of  blasting  powder.  The 
du  Pont  and  Laflin  and  Rand  interests  had  entered  the  dyna- 
mate  business  about  1879.  They  organized  two  new  com- 
panies and  acquired  stock  interests  in  a  third.  In  1895  the 
three  companies  were  taken  over  through  the  exchange  of 
stock  by  the  Eastern  Dynamite  Company,  a  New  Jersey 
holding  company,  organized  for  this  purpose  with  a  capital 
stock  of  $2,000,000,  of  which  the  du  Pont  and  Laflin  and 
Rand  interests  held  a  majority  control.  In  the  same  year 
the  Eastern  Dynamite  Company  entered  into  an  agreement 
with  the  Aetna  Powder  Company  providing  for  a  division  of 
the  dynamite  trade  between  the  two  companies  and  their 
subsidiaries  based  upon  the  amount  of  business  done  by  each 
during  the  previous  year.  Each  company  agreed  not  to  cut 
prices  under  pain  of  heavy  penalties  and  to  pay  two  cents 
per  pound  to  the  other  on  all  sales  exceeding  its  allotment. 
A  board  of  five  was  to  adjust  the  business  proportionally. 
During  the  first  three  years  following  this  agreement  the 
Eastern  company  acquired  seven  or  more  companies  and  in- 
creased its  proportion  of  sales  accordingly. 

In  1897,  foreign  manufacturers  of  powder  and  explo- 
sives began  to  construct  factories  in  New  Jersey.  The 
powder  combination  quickly  sent  representatives  to  Europe 
who  negotiated  the  "European  Agreement."  18  By  the  terms 
of  the  agreement  no  explosive  factories  were  to  be  built  by 
Americans  in  Europe  or  by  the  Europeans  in  America. 
Those  under  construction  in  New  Jersey  were  to  be  taken 
over  by  American  companies.  As  for  black  powder  and 
smokeless  sporting  powder  each  party  could  ship  these  into 
the  territory  of  the  other.  The  agreement  also  provided 
that  European  factories  were '  bound  not  to  sell  or  quote 
prices  of  explosives  to  the  Government  of  the  United  States 
lower  than  those  fixed  by  the  American  factories.  Likewise, 
the  American  factories  were  bound  not  to  sell  or  quote  prices 
of  explosives  to  foreign  governments  lower  than  those  fixed 
by  the  European  factories.  The  world  was  divided  into  four 
districts  for  the  sale  of  high  explosives.  The  United  States, 

18  Petitioner's  Record  Exhibits,  V.  2,  pp.  1123-1132;  Stevens,  Quart. 
Jour,  of  Econ.,  V.  23,  pp.  465-7. 


152  Trust  Dissolution 

Mexico,  parts  of  Central  America  and  a  small  part  of  South 
America  constituted  exclusive  American  territory.  All  the 
rest  of  South  America  and  the  islands  of  the  Caribbean  Sea, 
not  Spanish  possessions,  was  designated  as  syndicate  terri- 
tory in  which  the  minimum  selling  prices  were  to  be  jointly 
regulated.  The  difference  between  the  fixed  price  and  the 
price  obtained  was  to  constitute  syndicate  profit  and  be  di- 
vided equally.  Canada  and  the  Spanish  possessions  in  the 
Caribbean  constituted  open  territory.  The  rest  of  the  world 
was  exclusively  reserved  for  the  European  factories.  Pro- 
visions for  supervision,  settling  differences,  and  penalties  for 
violations  were  included  in  the  agreement,  which  was  to  con- 
tinue for  a  period  of  ten  years. 

In  1898  a  "Mexican  Agreement"  was  arranged  pro- 
viding for  fixed  schedules  of  prices  in  Mexico  which  were  to 
be  jointly  observed.  To  avoid  the  competition  of  the  Han- 
cock Chemical  Company  in  Mexico,  the  privilege  of  acting 
as  the  exclusive  sales  agent  of  this  company  was  purchased. 
Thus  by  the  end  of  the  second  period  (1902)  competition 
was  practically  eliminated  in  the  dynamite  trade  as  well  as 
in  the  gunpowder.  The  control  of  the  combination  became 
further  strengthened  by  numerous  agreements  both  foreign 
and  domestic. 

The  third  period  of  this  history,  extending  from  1902 
to  1912,  was  characterized  by  an  increasing  concentration 
of  control  under  a  corporate  form  of  organization.19  Eu- 
gene du  Pont,  who  was  the  active  manager  of  the  E.  I.  da 
Pont  de  Nemours  and  Company,  the  most  influential  com- 
pany of  the  combination,  died  in  1902.  None  of  the  other 
stockholders  being  willing  to  assume  the  management,  Al- 
fred du  Pont  asked  the  cooperation  of  Pierre  S.  and  Thomas 
C.  du  Pont  who  had  not  previously  held  any  interests  in  the 
business.  The  three  Du  Ponts  organized  the  E.  I.  du  Pont 
de  Nemours  Company  of  Delaware  in  1902.  The  company, 
having  an  authorized  capital  stock  of  $20,000,000,  issued 
$11,997,000.  Of  this  amount  the  three  du  Ponts  received 
$8,940,000  as  promoters'  profit.20  The  balance  of  the 

"Stevens,  Quart.  Jour,  of  Econ.,  V.  23,  pp.  469-80. 
MIbid.,  p.  470. 


Decisions  Since  1911  153 

$11,997,000,  together  with  $12,000,000  in  notes,  was  given  in 
exchange  for  the  assets  of  the  old  combination.  The  Dela- 
ware company  of  1902,  in  order  to  remain  purely  a  holding 
company,  transferred  its  plant  assets  to  two  operating  com- 
panies, which  were  organized  for  this  purpose,  in  return  for 
their  securities.  The  most  important  of  these  operating 
companies  was  the  E.  I.  du  Pont  de  Nemours  and  Company 
of  Pennsylvania.  At  this  time  the  company  of  1902  con- 
trolled no  dynamite  plants.  It  had  minority  holdings  in 
fifteen  concerns,  a  majority  holding  in  a  sixteenth,  a  fifty 
percent  in  a  seventeenth,  and  owned  all  of  the  Hazard 
Powder  Company  which  in  turn  had  minority  holdings  in  six 
companies.21  The  Laflin  and  Rand  interests  had  minority 
holdings  in  thirteen,  fifty  percent  in  two,  and  a  majority  in 
two  companies. 

The  Delaware  Company  of  1902  soon  after  its  organiza- 
tion secured  an  option  on  a  majority  of  the  Laflin  and  Rand 
stock  and  organized  the  Delaware  Securities  Company  to 
take  over  the  property.22  The  purchase  price  was  about 
$4,000,000  in  bonds  and  a  stock  bonus  of  20  percent.  In 
like  manner  the  Delaware  Investment  Company  was  organ- 
ized to  acquire  about  32  percent  of  the  stock  of  the  Moosic 
Powder  Company  which  was  held  by  stockholders  of  the 
Laflin  and  Rand  Company.  The  exchange  price  of  this  stock 
was  about  $2,350,000  in  bonds  and  a  stock  bonus  of  25 
percent.  These  transactions  gave  the  Delaware  company 
complete  control  of  all  the  companies  in  the  combination 
except  ten.23  Of  these  ten  it  held  minority  control  in  three, 
and  five  were  more  or  less  completely  controlled  by  one  or 
more  agreements.  The  transactions  were  immediately  fol- 
lowed by  an  advance  in  prices. 

The  Delaware  company  of  1902  continued  to  acquire 
other  stocks.  Within  ten  months  it  acquired  from  25  to  75 
percent  of  the  stock  in  five  companies  in  which  it  had  no 
previous  holdings,  besides  additional  purchases  in  the  stocks 
of  its  own  subsidiaries.24  Full  control  succeeded  partial 

n  Stevens,   Quart.  Jour,  of  Econ.,  V.  23,  p.  471. 

"Ibid.,  pp.  472-3. 

-  Ibid. 

"Ibid.,  p.  475. 


154  Trust  Dissolution 

control  in  three  companies  operating  in  Pennsylvania,  in- 
cluding the  Moosic  Powder  Company. 

In  order  to  aid  the  combination  in  concentrating  its 
power  and  fastening  its  hold  upon  the  monopoly  it  had  so 
steadily  built  up,  another  parent  holding  company  was  or- 
ganized in  1903.  This  was  the  E.  I.  du  Pont  de  Nemours 
Powder  Company  of  New  Jersey  with  a  capital  stock  of 
$50,000,000  divided  equally  between  common  and  preferred. 
The  Delaware  company  of  1902  transferred  to  the  New 
Jersey  company  all  its  stock  holdings  in  other  companies, 
together  with  its  own  stock,  in  exchange  for  $30,200,000  of 
stock,  including  a  majority  of  each  kind,  of  the  New  Jersey 
company.25  The  policy  of  acquiring  competitors  was  pur- 
sued more  vigorously  than  ever.  Local  price  cutting  which 
had  been  the  chief  weapon  of  the  combination  from  the  first 
was  continuously  practiced.26  Control  of  the  California 
Powder  Works  was  made  complete,  and  the  California  In- 
vestment Company  was  organized  to  take  over  practically 
all  the  stock  of  the  Judson  Dynamite  and  Powder  Company. 
This  left  only  three  companies  of  the  old  combination.  In 
the  following  year  these  three  also  entered  into  an  agreement 
for  one  year,  but  two  did  not  renew  the  agreement. 

Control  of  several  other  important  companies  was  se- 
cured before  the  close  of  1903. 27  One  of  these  was  the  Met- 
ropolitan Powder  Company ;  another  was  the  E.  C.  Schultze 
Gunpowder  Company,  an  English  corporation  operating  in 
New  Jersey.  The  International  Smokeless!  Powder  and 
Chemical  Company,  which  was  a  large  producer  of  smoke- 
less powder  used  by  the  Government,  was  also  acquired 
through  the  International  Powder  Company  of  Wilmington, 
Delaware,  which  was  organized  for  this  purpose  with  $10,- 
000,000  of  stock.  A  large  part  of  the  stock  and  $1,000,000 
of  bonds  were  given  for  a  controlling  interest  in  the  former 
company.  A  complete  control  of  the  Ohio  Powder  Com- 
pany was  secured  in  1904.  The  Monarch  Powder  Company 
was  acquired  the  following  year,  and  by  1906  a  66  percent 

» 188  Fed.  Rep.  144. 

"Amended  Petition,  Pleadings,  p.  90. 

37  Ibid.,  pp.  71-85. 


Decisions  Since  1911  155 

control  of  the  California  Vigorite  Powder  Company  had  been 
obtained.  The  latter  was  an  important  competitor  of  the 
combination. 

In  addition  to  the  more  important  acquisitions  already 
noted  there  were  many  of  less  importance.  Up  to  the  middle 
of  1907,  the  du  Pont  de  Nemours  company  of  1903  and  the 
Eastern  Dynamite  Company  had  acquired  the  stocks  of  more 
than  one  hundred  companies.28  The  advance  of  prices  in 
1902  had  been  followed  by  another  a  few  years  later,  and 
since  the  manufacture  of  powder  did  not  require  a  large 
amount  of  capital  new  competitors  were  soon  attracted  to  the 
trade.  Local  price  cutting  was  practiced  wherever  competi- 
tors sought  a  foot-hold.  Prices  varied  widely  between  dif- 
ferent sections  of  the  country  showing  a  policy  of  charging 
what  the  traffic  would  bear.29  Losses  in  competitive  terri- 
tory were  more  than  offset  by  large  profits  in  non-competi- 
tive, although  potential  competition  exerted  a  more  powerful 
restraining  influence  than  in  the  case  of  the  Standard  Oil 
Company.  The  control  of  the  combination  over  sales  was 
made  more  effective  under  corporate  management.30  A  sales 
board  superseded  the  committee  plan  of  fixing  prices  and 
terms  of  sale.  The  country  was  divided  into  districts  and 
assistant  sales  directors  under  the  supervision  of  the  sales 
board  traveled  about  in  each.  During  the  18  months  pre- 
ceding December,  1907,  the  sales  directors  were  given  power 
to  meet  the  prices  of  competitors.  During  this  time  the 
competitors  who  were  not  eliminated  were  greatly  worried. 
The  campaign  appeared  to  be  a  preliminary  step  to  an  ad- 
vance in  prices  which  was  authorized  by  the  sales  board  at 
the  end  of  the  period.  With  the  advance  came  the  first  pub- 
lished schedule  of  prices.  Except  in  case  of  large  contracts 
there  was  little  departure  from  the  list  prices  and  price 
cutting  was  largely  discontinued.  Perhaps  the  Government's 
suit  which  was  filed  against  the  combination  in  1907  exerted 
some  influence. 

In  addition  to  the  frequent  advances  of  price  and  the 
power  to  practice  price  discrimination,  the  extent  of  mo- 

"  Petitioner's  Record,  Exhibits,  pp.  2744-7. 

"Amended  Petition,  Pleadings,  pp.  90-1. 

»°  Brief  for  the  United  States,  V.  2,  pp.  294-7. 


156  Trust  Dissolution 

nopoly  control  may  be  shown  in  part  by  the  percentage  of 
each  branch  of  the  trade  controlled  by  the  E.  I.  du  Pont 
de  Nemours  Powder  Company  from  1905-8:  31 

1905        1906       1907  1908 

Black  blasting  powder 64 . 6  63 . 4  64 . 0 

Saltpeter  blasting  powder.  .  80.0  69.5  72.0 

Dynamite. 72.5  73.0  71 .5    Substantially 

Black  sporting  powder 75 . 4  72 . 6  73 . 6      the  same  " 

Smokeless  sporting  powder .  70 . 5  61.3  64 . 0 

Government  ordnance 100.0  100.0  100.0 

The  foregoing  figures  do  not  include  the  sales  of  a  num- 
ber of  companies  which  were  more  or  less  controlled  by  the 
parent  company  through  minority  stock  holdings.33  Neither 
do  the  figures  include  the  sales  of  several  large  companies, 
such  as  the  Aetna  Powder  Company,  which  did  not  compete 
with  the  combination.34 

In  1904,  the  combination  began  to  dissolve  the  various 
subsidiary  operating  companies  controlled  by  it.  During  the 
next  few  years  about  seventy  corporations  engaged  in  the 
manufacture  of  explosives  passed  out  of  existence.  The 
object  of  this  policy  was  to  concentrate  the  explosive  busi- 
ness of  the  country.  The  property  and  assets  of  the  dis- 
solved companies  were  transferred  to  the  larger  companies 
in  the  combination.  It  was  intended,  as  soon  as  possible,  to 
discontinue  some  of  the  larger  companies.  The  action  of 
the  government  perhaps  prevented  further  concentration. 

Likewise,  the  profits  of  the  New  Jersey  holding  company 
are  indicative  of  monopoly  control  and  its  abuse.35  From 
the  time  the  company  was  organized  in  1903  to  the  end  of 
1909,  it  had  paid  out  in  cash  dividends  about  $11,000,000 
and  had  a  surplus  of  between  $12,000,000  and  $13,000,000.36 
The  Delaware  company  of  1902,  whose  original  investment 
amounted  to  $3,000,  owned  much  over  half  of  the  stock  of  the 

81  Brief  for  the  United  States,  V.  2,  pp.  330-4. 

"Ibid., p.  334. 

33  Ibid.,  p.  334. 

"  Ibid. 

86  Ibid.,  pp.  334-5. 

"Ibid. 


Decisions  Since  1911  157 

New  Jersey  company  and  received  considerably  more  than 
half  of  the  profits.37 

In  1907  the  Government  filed  dissolution  proceedings 
against  the  du  Pont  company  of  1903  and  in  1911  the  Cir- 
cuit Court  held  that  fourteen  corporations  and  fourteen  in- 
dividual defendants  were  maintaining  an  unlawful  combina- 
tion to  restrain  trade  in  the  manufacture  and  sale  of  gun- 
powder and  other  explosives.38  An  interlocutory  decree 
granted  to  both  the  petitioner  and  defendants  a  court  hear- 
ing at  which  a  plan  of  dissolution  would  be  agreed  upon. 
Either  side  could  submit  their  own  plan  or  plans,  but  any 
such  plans  must  not  deprive  the  defendants  of  the  oppor- 
tunity to  recreate  a  new  condition  in  harmony  with  the  law. 
In  June  1912  the  court  filed  its  final  decree.  It  ordered  the 
dissolution  of  the  combination  consisting  of  twelve  corpora- 
tions and  fifteen  individual  defendants.  Of  the  latter,  ten 
were  du  Fonts  by  name. 

The  decree  ordered  the  properties  of  the  following  com- 
panies to  be  distributed  among  their  stockholders :  Hazard 
Powder  Company,  Delaware  Securities  Company,  Judson 
Dynamite  and  Powder  Company,  Delaware  Investment  Com- 
pany, California  Investment  Company,  and,  unless  as  later 
provided  for,  Laflin  and  Rand  Powder  Company,  and  East- 
ern Dynamite  Company.  All,  or  a  majority  of  the  stocks 
of  each  of  the  above  corporations  was  owned  by  the  du  Pont 
Company  of  1903.  The  du  Pont  Company  of  1902  which 
owned  the  stock  of  the  du  Pont  Company  of  1903  was  ordered 
to  be  dissolved,  its  property  being  distributed  among  its 
stockholders. 

The  property  and  business  still  remaining  with  the  du 
Pont  Company  of  1903  were  ordered  to  be  shared  with  two 
new  corporations,  with  two  alternatives.  The  Laflin  and 
Rand  and  the  Eastern  Dynamite  companies  might  be  reor- 
ganized and  utilized  instead  of  the  two  new  corporations, 
or  either  of  the  former  could  be  used  for  one  of  the  latter.  " 
The  defendants  chose  to  organize  two  new  corporations,  the 

37  Brief  for  the  United  States,  V.  2,  pp.  334-5. 
"188  Fed.  Rep.  156. 


158  Tru#t  Dissolution 

Hercules  and  the  Atlas  powder  companies.  To  the  first 
were  assigned  three  plants  for  the  manufacture  of  dynamite, 
seven  plants  for  the  manufacture  of  blasting  powder,  and  two 
plants  for  the  manufacture  of  black  sporting  powder.  To 
the  second  were  allotted  four  plants  for  the  manufacture  of 
dynamite  and  five  plants  for  the  manufacture  of  black  blast- 
ing powder.  The  distribution  left  the  du  Pont  Company  of 
1903  eight  plants  producing  dynamite,  seven  plants  for  the 
manufacture  of  black  blasting  powder,  two  plants  for  the 
manufacture  of  black  sporting  powder,  and  also  two  plants 
for  the  manufacture  of  government  smokeless  powder.  A 
partial  division  of  the  smokeless  sporting  powder  business 
was  made  by  requiring  that  a  plant  located  at  some  eastern 
point,  with  a  capacity  of  950,000  pounds  per  annum  be 
transferred  or  furnished  to  the  first  of  the  new  corporations 
organized.  The  du  Pont  company  was  left  the  sole  con- 
tractor for  government  smokeless  powder  as  the  court  main- 
tained that  a  division  among  several  competing  companies 
would  tend  to  destroy  the  practical  and  scientific  co-opera- 
tion between  the  Government  and  the  defendant  company, 
and  to  impair  the  certainty  and  efficiency  of  the  results  thus 
obtained.  It  may  be  noted  that  the  Government  by  owner- 
ship and  operation  of  its  own  plants  is  enabled  to  control 
the  price  it  pays  for  powder. 

The  method  of  handling  the  securities  of  the  new  cor- 
porations was  much  different  than  in  the  analogous  case  of 
the  American  Tobacco  Company.  The  new  corporations 
were  required  to  pay  for  the  properties,  brands,  good  will 
and  business  transferred  to  them  by  issues  of  bonds  and 
stocks.  Fifty  percent  of  the  purchase  price  consisted  of  in- 
come bonds  bearing  six  percent  interest  that  was  payable  if 
earned  by  the  company  during  the  year,  or  to  the  extent 
thereof  earned  but  not  otherwise.  The  bonds  were  to  be 
paid  within  ten  years.  The  other  half  of  the  purchase  price 
was  the  total  stock  issue  of  the  two  new  corporations.  All 
the  stock  and  half  of  the  bonds  were  ordered  distributed 
among  the  stockholders  of  the  du  Pont  Company  of  1903. 
Such  of  the  stocks  as  were  due  to  any  of  the  twenty-seven 
defendants  were  ordered  to  be  one-half  voting  and  the  other 


Decisions  Since  1911  .     159 

half  non-voting  stock.  Upon  transfer  by  death  or  will  to 
some  person  not  one  of  the  defendants,  non-voting  stock 
could  be  exchanged  for  voting  stock.  This  privilege  of  ex- 
change was  extended  to  any  purchaser  of  non-voting  stock 
provided  that  the  purchaser  was  not  a  defendant  or  the 
wife  or  child  of  one. 

The  decree  ordered  that  as  far  as  practicable  a  fair  pro- 
portion of  the  explosive  business  should  be  transferred  to  the 
new  corporations.  The  new  corporations  were  granted  for 
a  period  of  five  years  free  access  to  the  records  of  the  Trade 
Bureau  of  the  trust,  and  also  to  such  facilities  as  the  du  Pont 
Company  may  possess  in  reference  to  the  purchase  of  ma- 
terials, experimentation,  and  scientific  research. 

The  defendants  and  the  new  companies  were  enjoined 
from :  ( 1 )  uniting  in  any  way  the  businesses  of  the  new  con- 
cerns with  their  own  or  vice  versa,  or  placing  the  stocks  of 
either  in  the  hands  of  a  voting  trust;  (8)  making  any  agree- 
ment or  arrangement  relative  to  prices  or  apportioning 
trade  by  either  customers  or  localities;  (3)  using  local  price 
cutting  to  eliminate  competition,  except  that  prices  may  be 
lowered  to  meet  or  compete  with  those  of  rival  manufactur- 
ers. (This  was  one  of  the  leading  weapons  of  the  trust)  ; 
(4)  retaining  either  the  same  clerical  force  or  the  same 
office;  (5)  operating  bogus  independents,  all  subsidiary  con- 
cerns being  required  to  place  their  names  upon  their  prod- 
ucts and  to  give  a  statement  indicating  their  control.  The 
three  corporations  were  further  enjoined  for  a  period  of 
five  years  from:  (1)  having  an  officer  or  director  who  also 
holds  such  an  office  in  either  of  the  other  corporations;  (2) 
having  the  same  sales  agent  as  another,  though  they  may 
sell  through  the  same  merchant  or  dealer;  (3)  acquiring  the 
stock,  factories,  plants,  brands,  or  business  of  any  other. 

For  three  years,  the  individual  defendants  were  forbid- 
den to  increase  their  stock  or  other  interests  in  the  new  com-^ 
panics,  although  they  could  acquire  the  interests  of  other 
defendants.  A  number  of  agreements  entered  into  by  the 
defendants  were  ordered  annulled.  Six  months  were  allowed 
to  put  in  force  the  terms  of  the  decree ;  that  is,  until  Decem- 
ber 15,  1911.  The  court  retained  its  jurisdiction  of  the  case 


160  Trust  Dissolution 

and  ordered  that  a  report  be  made  for  its  approval  after 
the  plan  had  been  carried  out. 

After  a  consideration  of  the  history  of  the  powder  trust 
and  its  dissolution,  W.  S.  Stevens  declares  that  the  "effect 
of  the  dissolution  is  difficult  to  predict.  The  distribution  of 
plants  in  order  to  insure  competition  promises  well.  In  the 
transfer  of  securities  the  theory  has  been  apparently  to  di- 
vide the  strong  stock  control  of  the  du  Fonts  by  returning 
half  the  purchase  price  of  the  plants  transferred  in  an  in- 
come bond.  The  du  Fonts'  interest  after  this  process  is 
again  split  in  half  by  the  distribution  to  the  twenty-seven 
defendants  of  half  their  stock  in  a  non-voting  issue.  Regard- 
ing this  latter  provision  it  is  to  be  borne  in  mind  that  by 
sale  to  other  than  the  defendants  or  their  wives  and  children 
such  non-voting  stock  becomes  exchangeable  for  voting 
stock.  This  clause  is  pregnant  with  suggestions  of  dummy 
vandies.  It  is  very  questionable  if  the  division  into  voting 
and  non-voting  stock  as  it  stands  gives  any  real  safeguard. 
Had  the  court  forbidden  the  exchange  of  the  non-voting 
stock  for  voting  stock  for  a  period  of  five  years  or  more 
this  provision  would  have  been  more  satisfactory.  As  in  the 
Tobacco  dissolution  which  contains  the  same  clause,  the  pro- 
vision against  the  acquisition  for  a  period  of  three  years  by 
defendants  of  further  interests  in  the  new  companies  than 
those  assigned,  is  open  to  serious  criticism.  The  result  after 
three  years  no  one  can  foretell.  It  may  be  pointed  out  fur- 
ther that  the  clause  forbidding  local  price  cutting  contains 
one  exception  that  makes  it  of  no  value  if  by  chance  an  in- 
dependent manufacturer  cuts  the  price  first.  As  the  clause 
now  stands  that  act  would  apparently  justify  a  trade 
war."  39 

In  conclusion  it  may  be  said  that  the  injunctions  laid 
upon  the  defendants  and  the  three  corporations  were  very 
similar  to  those  of  the  tobacco  dissolution  and  are  to  that 
extent  subject  to  nearly  all  of  the  objections  raised  against 
that  plan.40  It  was  nearly  two  years  after  the  combination 

"Stevens,  Quart.  Jour,  of  Econ.,  V.  27,  pp.  206-7. 
40  See  pp.   134-40. 


Decisions  Since  1911  161 

was  declared  illegal  before  the  dissolution  was  effected.41 
The  practical  effects  of  the  dissolution  cannot  be  analyzed, 
for  soon  after  it  was  completed  an  unprecedented  demand  for 
powder  and  other  explosives  arose  on  the  part  of  European 
nations.  The  profits  of  the  companies  have  been  enormous 
and  their  capacity  and  capitalization  have  been  greatly  in- 
creased. Many  new  concerns  have  entered  the  industry  and 
no  doubt  depressed  conditions  due  to  an  enlarged  capacity 
will  attend  the  return  of  a  normal  demand. 

THE   DISSOLUTION   OF   THE   UNION  PACIFIC   RAILROAD 
COMPANY 

The  main  line  of  the  Union  Pacific  Railroad  Company 
extends  from  Council  Bluffs,  Iowa,  to  Ogden,  Utah.  From 
Ogden,  the  Union  Pacific  has  a  line  extending  in  a  north- 
westerly direction  to  the  coast  at  Portland  through  control 
of  the  Oregon  Short  Line  and  the  Oregon  Railroad  and  Navi- 
gation Company.  At  Portland  it  has  steamboat  connection 
with  San  Francisco.  This  was  a  much  longer  route  to  the 
coast  than  from  Ogden  directly  to  San  Francisco  over  the 
Central  Pacific,  a  distance  of  800  miles.  The  Central  Pa- 
cific was  owned  by  a  strong  rival  system,  the  Southern  Pacific 
Railroad,  and  much  of  the  Union  Pacific's  through  trade  had 
to  be  turned  over  to  its  competitor  at  Ogden. 

The  Union  Pacific  tried  repeatedly  to  avoid  its  "bottled 
up"  position  at  Ogden  by  purchasing  the  Central  Pacific 
Railroad,  but  without  success.  Finally  in  1901-2,  the  Union 
Pacific  secured  control  of  the  Central  Pacific  indirectly  by 
purchasing  a  controlling  interest  in  the  Southern  Pacific 
system,  which  consisted  of  about  3,500  miles  of  ocean  and 
river  lines  and  over  8,000  miles  of  railroad  lines,  forming  a 
transportation  system  from  New  York  and  other  Atlantic 
ports  to  San  Francisco  and  other  Pacific  ports,  with  various 
branches  and  connections,  besides  several  important  steam- 
ship lines.42  The  stock  purchased,  which  was  held  by  a  pro- 
prietary company  of  the  Union  Pacific,  the  Oregon  Short 


"Moody's  Manual,  1916. 
U.  S.  93. 


162  Truest  Dissolution 

Line,  amounted  to  46  percent  of  the  total  stock  of  the 
Southern  Pacific  Railroad.  While  this  was  less  than  a  ma- 
jority of  the  stock,  Mr.  Harriman,  who  dominated  the  Union 
Pacific,  frankly  admitted  that  it  gave  him  control  of  the 
Southern  Pacific.43  After  the  purchase  Mr.  Harriman  be- 
came President  and  Chairman  of  the  Executive  Committee 
of  the  Southern  Pacific  Company  with  the  same  ample  pow- 
ers which  he  had  in  a  like  position  in  the  Union  Pacific. 

The  Government  brought  suit  under  the  Sherman  Act 
against  the  Union  Pacific,  charging  that  the  acquisition  of 
the  Southern  Pacific  stock  was  illegal.  The  Circuit  Court 
dismissed  the  charge  upon  the  ground  that  the  Union  Pa- 
cific and  Southern  Pacific  were  connecting,  and  only  inci- 
dentally, competing  lines.  The  case  was  appealed  to  the 
Supreme  Court  which  rendered  a  decision  late  in  1912.  This 
Court  declared  that  the  purchase  of  the  stock  of  the  South- 
ern Pacific  constituted  an  unlawful  combination  in  restraint 
of  trade.  It  allowed  the  Government  and  defendants  three 
months  to  work  out  a  plan  of  dissolution  agreeable  to  the 
Circuit  Court.  In  the  meanwhile,  the  Union  Pacific  was 
enjoined  from  exercising  control,  voting,  or  paying  dividends 
on  the  stock  while  in  its  possession,  or  in  the  possession  of 
a  subsidiary  company,  or  held  by  a  corporation  or  person 
for  the  Union  Pacific.44 

Soon  after  the  decree  was  given,  both  the  Government 
and  the  defendants  joined  in  asking  the  Supreme  Court  to 
instruct  the  Circuit  Court  whether  a  pro  rata  sale  or  dis- 
tribution of  the  Southern  Pacific  stocks  to  the  shareholders 
of  the  Union  Pacific  Railroad,  as  was  done  in  the  Northern 
Securities  and  Standard  Oil  dissolutions,  would  meet  the  re- 
quirements of  the  Supreme  Court.45  The  appellees  urged 
that  such  a  dissolution  would  end  the  consolidation,  espe- 
cially since  the  Union  Pacific  had  outstanding  $316,215,600 
of  stock  and  $37,000,000  of  convertible  bonds,  and  since 
these  securities  were  distributed  among  22,150  stockhold- 

"226  U.S.  95-6. 

44  226  U.  S.  96-7. 

45  226  U.  S.  470-7 


Decisions  Since  1911  163 

ers  46  rpfa  Supreme  Court  refused  this  proposed  plan,  main- 
taining that  it  would  not  end  the  combination.  The  Court 
declared  that  it  would  not  be  bound  by  the  former  precedents 
saying  that  "each  case  under  the  Sherman  Act  must  stand 
upon  its  own  facts,  and  we  are  unable  to  regard  the  decrees 
in  the  Northern  Securities  Company  case  and  the  Standard 
Oil  Company  case  as  precedents  to  be  followed  now,  in  view 
of  the  different  situation  presented  for  consideration." 47 
No  credence  was  given  to  the  alleged  wide  distribution  of 
stock  ownership.  While  the  Union  Pacific  had  22,150  stock- 
holders, the  Chief  Justice  pointed  out  the  fact  that  68  stock- 
holders owned  44  percent  of  the  stock,  and  300  others  owned 
18.8  percent.48  Thus,  368  persons  controlled  62.8  percent 
of  all  the  stock  of  the  company,  so  that  consolidation  might 
easily  be  perpetuated  through  the  activity  of  the  large  stock- 
holders. 

Much  difficulty  was  experienced  in  arriving  at  an  agree- 
able plan  of  dissolution.  Upon  the  refusal  of  the  first  plan, 
a  second  one  was  tried.49  It  proposed :  first,  a  sale  of  South- 
ern Pacific  stock,  under  privileged  conditions,  to  all  share- 
holders both  of  the  Union  Pacific  and  Southern  Pacific  com- 
panies, except  the  Union  Pacific  or  the  Oregon  Short  Line 
companies ;  and  secondly,  with  the  funds  thus  acquired,  an 
outright  purchase  by  the  Union  Pacific  from  the  Southern 
Pacific  of  the  Central  Pacific  link.  This  plan  also  failed. 
Conflicting  stipulations  in  the  bond  issue,  and  the  almost 
hopeless  physical  entanglement  of  the  two  properties  hin- 
dered the  carrying  out  of  the  plan.  But  the  chief  objection 
came  from  the  aroused  public  sentiment  of  California,  which 
through  its  railroad  commission  insisted  upon  the  continu- 
ance of  actual  competition  at  all  points.  Thus  the  Union 
Pacific  lost  the  long  coveted  short  line  to  the  coast. 

A  third  plan  50  proposed  a  pro  rata  distribution  of  the 
Southern  Pacific  stock  among  the  shareholders  of  the  Union 
Pacific,  but  such  a  disposition  was  to  be  coupled  with  dis- 

48  226  U.  S.  472,  476. 

47  226  U.  S.  474. 

48  226  U.  S.  476. 

49  Ripley,  Railroads,  Finance  and  Organization,  pp.  566-7. 
60  Ibid.,  pp.  566-7. 


164  Trust  Dissolution 

franchisement  for  all  purposes  of  control,  of  all  holders  of 
1,000  shares  or  over.  A  trustee  was  to  issue  certificates  of 
interest  upon  deposit  of  all  Southern  Pacific  shares  held  by 
the  Union  Pacific,  which  were  to  carry  no  voting  rights  while 
so  held,  and  which  should  be  exchangeable  for  actual  South- 
ern Pacific  shares  only  on  affidavit  that  the  applicant  for 
exchange  held  less  than  1,000  shares.  This  plan  would  ex- 
clude 368  private  shareholders  from  further  increasing  their 
holdings  and  in  so  doing  was  held  to  be  of  doubtful  legality, 
and  hence  was  rejected. 

The  plan  finally  adopted  required  the  Union  Pacific  to 
dispose  of  its  46  percent  of  the  Southern  Pacific  stock, 
amounting  to  $126,650,000  par  value.51  Of  this  amount 
$38,292,400  was  exchanged  with  the  Pennsylvania  Railroad 
for  stocks  of  the  Baltimore  and  Ohio  Railroad,  a  competing 
line  of  the  former  railroad.  This  was  an  attempt  at  a 
double  dissolution  of  two  railroads,  by  substituting  in  each 
case  control  or  at  least  a  dominant  interest  in  a  competing 
line  for  the  interest  of  merely  a  connecting  line.  The  stocks 
of  the  Baltimore  and  Ohio  acquired  by  the  Union  Pacific 
were  distributed  as  a  dividend  among  its  shareholders.  This 
still  left  the  Union  Pacific  with  a  balance  of  $88,357,600  of 
Southern  Pacific  stock  which  was  distributed  among  the  other 
general  shareholders  of  the  Union  Pacific  limiting  the 
amount  received  by  any  one  shareholder  to  27  percent  of  his 
individual  holdings.  In  restoring  these  stocks,  the  expedient 
of  issuance  of  certificates  of  interest  by  a  trustee  to  be  ex- 
changed for  actual  stock  upon  affidavit  that  purchase  was 
made  in  good  faith  on  his  own  behalf,  independent  of  the 
Union  Pacific  interests,  was  borrowed  from  the  preceding 
plan. 

The  plan  of  dissolution  left  the  Central  Pacific  in  the 
possession  of  the  Southern  Pacific,  a  feature  of  the  dissolu- 
tion held  to  be  essential  by  the  Taft  administration.  The 
Harriman  interests  always  held  the  right  to  possession  of 
the  Central  Pacific  under  the  Acts  of  Congress  of  1862-64, 
which  aimed  to  encourage  by  liberal  land  grants  and  subsi- 
dies the  construction  of  the  first  transcontinental  railroad, 
81  Ripley,  Railroads,  Finance  and  Organization,  pp.  566-7. 


Decisions  Since  1911  165 

and  which  provided  that  "the  whole  line  of  said  railroad 
*  *  *  shall  be  operated  and  used  for  all  purposes  of  com- 
munication *  *  so  far  as  the  public  and  Government  are 
concerned,  as  one  connected  continuous  line."  52  A  recon- 
sideration of  this  claim  led  to  the  institution  of  another  suit 
in  1914  by  the  Department  of  Justice.  This  time  it  was  to 
compel  the  Southern  Pacific  to  terminate  its  control  of  the 
Central  Pacific.53  The  Government  contended  that  such  a 
change  would  promote  the  public  interest,  especially  for 
California  and  the  Pacific  slope,  by  giving  a  direct  continu- 
ous transcontinental  line  that  could  freely  compete  and 
bind  more  closely  the  East  and  West.  Certain  California 
shippers  had  opposed  such  an  arrangement  at  the  time  of 
dissolution. 

The  dissolution  of  the  Union  Pacific  marked  a  decided 
advance  over  the  previous  dissolutions.  The  corporation  ad- 
judged illegal  was  denied  the  privilege  of  retaining  any  stock 
or  ownership  in  the  properties  illegally  joined.  No  control- 
ling interest  in  the  Southern  Pacific  was  allowed  among  the 
shareholders  of  the  defendant  corporation.  The  proportion 
of  Southern  Pacific  stock  received  by  the  latter  shareholders 
was  distributed  in  proportion  to  their  individual  holdings 
and  then  only  upon  affidavit  of  no  intent  to  unite  with  the 
Union  Pacific  interests.  The  adoption  of  such  a  policy  had 
been  far  more  urgent  in  previous  dissolutions.  The  Union 
Pacific  had  a  far  better  justification  for  its  combination. 
It  had  been  charged  with  neither  unfair  methods  nor  the  ex- 
tortion of  excessive  prices,  such  as  had  usually  character- 
ized the  corporations  previously  dissolved.  Had  such  meas- 
ures forbidding  large  stock  ownership  been  adopted  in  the 
Standard  Oil  and  American  Tobacco  Company  dissolutions, 
better  results  would  have  followed. 

THE  ANTHRACITE  COAL  COMBINATION 

A  study  of  the  anthracite  coal  combination  and  of  the 
efforts  made  to  break  its  power  brings  an  added  realization 

M  Ripley,  Railroad  Finance  and  Organization,  p.  569. 
"Ibid. 


166  Trust  Dissolution 

of  the  complexity  of  the  trust  problem  which  presses  upon 
the  courts  and  law-making  assemblies  for  solution.  An  ex- 
tended study  of  this  combination,  both  as  to  its  history  and 
present  legal  position,  has  recently  been  made  by  Dr.  Eliot 
Jones  in  "The  Anthracite  Coal  Combination  in  the  United 
States."  54  This  work  furnished  much  of  the  data  for  the 
following  pages. 

The  geographical  location  of  the  anthracite  coal  industry 
of  the  United  States  is  such  as  to  invite  concerted  action  and 
make  easy  of  accomplishment  any  attempt  to  dominate  the 
supply  of  coal  and  the  control  of  prices  of  this  commodity. 
Control  would  give  a  monopoly  of  a  natural  resource  whose 
annual  production  is  about  75,000,000  tons.  The  monopoly 
position  would  be  further  fortified  by  the  fact  that  there  is 
practically  no  foreign  competition.  The  hard  coal  deposits 
of  our  country  are  localized  to  a  remarkable  degree.  Five 
adjoining  counties  in  the  northeastern  part  of  the  State  of 
Pennsylvania  produced  96  percent  of  the  total  output  of  the 
country.55  The  484  square  miles  of  workable  beds  lie  in  a 
broken  and  mountainous  region  one  hundred  and  fifty  to  two 
hundred  and  fifty  miles  from  tide  water.  The  commercial 
value  of  the  coal  is  dependent  to  a  large  degree  upon  quick 
and  cheap  transportation  to  the  tide-water  points,  whence 
it  is  shipped  to  the  consuming  markets. 

From  early  days,  the  State  of  Pennsylvania  attempted 
to  help  the  anthracite  coal  industry  to  overcome  its  trans- 
portation difficulties.  Railroads  were  given  power  to  acquire 
coal  lands  and  engage  in  the  business  of  mining  and  selling 
coal  and  to  assist  coal  companies  by  purchasing  their  stocks 
and  bonds.56  These*  opportunities  were  rapidly  seized  and 
by  1875  most  of  the  coal  lands  were  in  the  hands  of  the  rail- 
roads. The  bad  results  arising  from  the  union  of  transpor- 
tation and  mining  privileges  led  in  1874  to  the  passage  of  a 
state  constitutional  amendment  which  forbade  common  car- 

64  Harvard  Economic  Studies,  V.  XI,  1914,  hereafter  referred  to  as 
Jones.  Other  sources  are:  164  Fed.  Rep.  217-54;  183  Fed.  Rep.  427-497; 
213  U.  S.  366-419;  226  U.  S.  324-373;  213  Fed.  Rep.  240;  238  U.  S.  516; 
226  Fed.  Rep.  229. 

66Jones,  p.  5. 

M226  U.  S.  339;  Jones,  p.  27. 


Decisions  Since  1911  167 

riers  to  mine  or  manufacture,  directly  or  indirectly,  articles 
or  commodities  for  transportation  over  their  own  lines,  but 
the  law  was  too  late  to  save  the  independence  of  the  coal  in- 
dustry. 

The  large  annual  interest  charges  resulting  from  the  pur- 
chase of  the  coal  lands  and  from  the  seasonal  demand  for 
hard  coal,  which  is  used  almost  exclusively  for  domestic  pur- 
poses, gave  the  railroads  a  strong  incentive  to  seek  pooling 
devices  to  prevent  cutting  of  prices.  Between  1873  and 
1898  the  railroads  entered  into  various  combinations  to  con- 
trol through  restrictive  policies  the  production  and  price  of 
coal.57  These  agreements  were  usually  of  short  duration, 
being  followed  by  periods  of  keen  competition  and  increased 
production.  The  large  indebtedness  of  the  railroads  made 
them  eager  to  exceed  their  annual  allotments  agreed  to  by 
the  combination.  When  pooling  was  made  illegal  in  1887 
reliance  was  placed  largely  upon  the  leasing  of  competing 
railroads.  The  leased  roads  were  guaranteed  an  interest 
rate  plus  a  division  of  the  profits  earned  above  this  rate.  The 
operation  of  the  leasing  arrangement  through  the  Reading 
Company,  which  in  1892  had  70  percent  of  the  anthracite 
shipments  under  its  control,  was  secured  through  inter- 
locking directorates  among  the  roads  and  through  seven 
year  contracts  with  independent  mine  operators.  The  latter 
agreed  to  accept  for  their  production  of  coal  60  percent  of 
the  tide-water  price.  None  of  these  arrangements  were  suc- 
cessful for  more  than  a  short  period,  partly  because  of  the 
changing  financial  conditions  of  the  country. 

With  the  period  of  rising  prices  beginning  about  1897, 
more  effective  methods  of  restraining  competition  in  the  an- 
thracite industry  were  secured  through  extensive  consolida- 
tion. The  first  step  in  this  direction  was  made  by  the  con- 
solidation of  railroads  competing  in  anthracite  transporta- 
tion.58 In  1898,  the  Erie  Railroad  purchased  a  complete 
controlling  interest  in  the  New  York,  Susquehanna  and  West- 
ern Railroad.  The  Reading  Company,  through  its  purchase 
of  the  Central  Railroad  of  New  Jersey,  obtained  nearly  one- 

57  Jones,  pp.  40-58. 
88  Ibid.,  pp.  59-67. 


168  Trust  Dissolution 

third  of  the  total  coal  shipments.  The  New  York,  New 
Haven  and  Hartford  and  the  Lehigh  Coal  and  Navigation 
Company  each  secured  through  purchase  or  through  inter- 
directorate  arrangements  the  control  of  several  competing 
lines.  A  second  step  in  securing  an  effective  combination  of 
the  anthracite  interests  was  made  by  developing  a  community 
of  interest  among  the  railroads.59  This  was  brought  about 
through  the  inter-ownership  of  stocks  and  through  inter- 
locking directorates  with  other  railroad  systems.  The  unity 
of  action  was  sufficient  by  1901  to  restrain  the  competition 
and  to  command  control  of  the  situation.  The  third  and  final 
step  in  the  consolidation  plan  was  the  practical  elimination 
of  the  independent  operators.60  This  was  effected  either 
through  purchase  or  by  means  of  percentage  contracts. 
Many  of  the  seven  year  percentage  contracts  with  the  inde- 
pendents expired  about  1899,  and  the  independents,  claim- 
ing that  60  percent  of  the  tide-water  price  was  not  enough, 
planned  to  build  an  independent  railroad  for  their  coal  ship- 
ments. The  building  of  a  new  road  was  started,  but  the 
combination  railroads  through  the  instrumentality  of  the 
Temple  Iron  Company  purchased  enough  of  the  mines  of 
the  independents  to  prevent  the  construction  of  the  line.  A 
second  attempt  of  the  independents  to  build  their  own  line 
was  also  crushed,  but  as  a  result  of  this  effort,  the  indepen- 
dents secured  an  increase  to  65  percent  of  the  tide-water 
price  in  their  contracts.61  But  it  is  important  to  note  that 
these  contracts,  instead  of  being  for  a  short  period,  were 
for  the  most  part  perpetual.  Thus  most  of  the  independents 
not  purchased  either  directly  or  indirectly  were  eliminated 
by  means  of  the  perpetual  percentage  contracts. 

The  Temple  Iron  Company,62  organized  in  1873,  had 
just  prior  to  the  time  of  the  above  purchases,  in  1899,  a 
capitalization  of  $240,000  and  employed  from  100  to  200 
men.  Its  capital  stock  was  increased  to  $2,500,000  and  a 
bond  issue  of  $3,500,000  was  made.  Mr.  Baer,  president  of 
the  Reading  Railroad  Company,  was  formerly  president  of 

69  Jones,  pp.  67-73. 
80  Ibid.,  pp.  73-97. 

61  Ibid.,  pp.  87-97. 

62  Ibid.,  pp.   76   ff;  151-5. 


Decisions  Since  1911  169 

the  Temple  Iron  Company  for  several  years  prior  to  1899, 
and  he  remained  president  of  the  company  almost  continu- 
ously after  that  year.  He  was  very  familiar  with  the  broad 
charter  privileges  of  the  company  for  he  had  aided  in  draw- 
ing up  the  articles  of  incorporation  and  the  practical  con- 
trol of  the  company  rested  with  him.  The  directors  of  the 
company  included  the  presidents  of  the  combining  railroads 
and  some  personal  friends  of  Mr.  Baer.  Although  its  capi- 
talization was  not  large,  relatively,  the  company  through  the 
men  and  the  interests  brought  together  formed  the  medium 
for  the  understandings  that  gave  unity  of  action  in  the  an- 
thracite coal  industry.  In  1912  the  Supreme  Court  declared 
that  the  company's  "board  of  directors  *  *  *  supplies  time, 
place,  and  occasion  for  the  expression  of  plans  or  combina- 
tions requiring  or  inviting  concert  of  action."  63  The  debts 
of  the  company,  through  which  the  purchases  and  percen- 
tage contracts  were  made,  were  guaranteed  by  the  support- 
ing railroads. 

The  combination  in  1907  controlled  91.3  percent  of  the 
total  production  of  hard  coal  even  though  the  independents 
mined  22  percent  of  the  total.64  The  report  of  the  State 
Department  of  Mines  shows  that  the  independents  in  1911,  as 
in  1907,  mined  and  controlled  less  than  one-tenth  of  the  total 
output  while  the  railroad  companies  mined  and  controlled 
over  nine- tenths.65  Of  the  unmined  coal  the  railroad  com- 
panies owned  in  1896,  90.9  percent,  and  if  the  future  ton- 
nage controlled  by  them  through  contracts  be  included  they 
owned  and  controlled  96.3  percent,  leaving  only  3.7  percent 
of  the  future  available  tonnage  in  private  hands.66  Mr. 
Jones  believes  that  since  the  independents  in  1907  owned  less 
than  9  percent  of  the  unmined  tonnage  and  produced  nearly 
22  percent  of  the  total  output,  that  the  independents  will  be 
eliminated  in  the  comparatively  near  future  unless  new  con- 
ditions are  secured  through  effective  legislation.67 

The  transportation  rates  on  anthracite  coal  were  also 

"226  U.  S.  353. 

84  Jones,  p.  107;  226  U.  S.  339. 

w  Jones,  p.  107. 

"Ibid.,  p.  109. 

6T  Ibid.,  pp.  107-9. 


170  Tmst  Dissolution 

made  unduly  high  for  the  independent  operators.68  Since 
the  railroads  had  their  own  mining  interests  it  made  no  dif- 
ference whether  the  profits  were  distributed  on  the  shares  in 
the  mining  or  the  railroad  companies.  If  a  coal  company  in- 
curred a  deficit  it  was  reimbursed  from  its  respective  rail- 
road company.  The  coal  railroads  all  showed  a  very  rapid 
advance  in  the  value  of  their  stocks  after  1898.  In  every 
case,  the  value  of  the  stocks  was  doubled  and  for  most  roads 
trebled.  That  this  was  due  to  effective  cooperation  was  fur- 
ther shown  by  the  fact  that  during  the  rapid  increase  of 
shipments,  though  fluctuating  annually  in  amount  by  even 
as  much  as  half  the  usual  output,  nevertheless  the  annual 
proportion  of  the  total  output  carried  by  each  railroad  re- 
mained quite  constant. 

A  study  of  the  prices69  of  anthracite  coal  at  tide-water 
points  shows  that  the  fluctuating  prices  prior  to  1899  gave 
place  to  steady  and  rapidly  advancing  prices  until  1903, 
after  which  they  remained  constant  until  1912,  the  year 
of  the  strike,  when  prices  were  raised  twenty-five  cents  per 
ton.  This  constancy  of  price  and  the  1912  increase,  which 
could  only  be  partly  attributed  to  increased  cost  of  opera- 
tion, indicate  an  understanding  among  those  who  control  the 
production  of  coal.  That  profits  were  excessive  is  further 
shown  by  the  fact  that  in  addition  to  the  heavy  burden  of 
interest  on  unused  coal  lands  and  the  watering  of  stock,  the 
railroad  companies  usually  paid  large  dividends. 

In  spite  of  the  numerous  investigations  and  suits,  both 
state  and  national,  the  coal  combination  has  succeeded  since 
1898  in  maintaining  an  effective  control  over  the  production 
and  sale  of  its  products.  The  strike  of  1902  and  the  re- 
sulting rise  in  price  provoked  the  first  attack  upon  the  com- 
bination. The  Interstate  Commerce  Commission  began  tak- 
ing testimony  in  April,  1902,  but  the  officials  of  the  rail- 
road and  of  the  coal  companies  refused  to  give  the  necessary 
evidence  and  testimony.  The  Commission  took  their  com- 
plaint to  the  District  Court,  which  decided  against  the  Com- 


08  Jones,  pp.   132-55. 
69  Ibid.,  pp.  154-179. 


Decisions  Since  1911  171 

mission,  but  the  Supreme  Court  reversed  (1904)  the  decision 
of  the  Circuit  Court,  and  the  Commission  continued  the  tak- 
ing of  evidence  up  to  1906.  No  decision  was  rendered  and 
little  was  accomplished  beyond  the  accumulation  of  useful 
information. 

The  consolidation  movement,  numerous  labor  difficulties, 
complaints  of  railroad  discrimination  against  the  indepen- 
dents, and  the  various  investigations  into  the  industry,  to- 
gether with  the  agitation  for  further  regulation  of  common 
carriers,  were  factors  which  helped  to  bring  about  the  Hep- 
burn Act  in  1906.  The  portion  of  the  act  affecting  the  coal 
combination  is  known  as  the  Commodity  Clause,  which  was 
designed  to  prevent  railroads  from  engaging  in  any  other 
business  than  that  of  common  carriers  by  making  it  illegal 
for  any  railroad  company  after  May  1,  1908,  to  transport 
in  interstate  commerce  "any  article  or  commodity,  other 
than  timber  and  the  manufactured  products  thereof,  manu- 
factured, mined  or  produced  by  it,  or  under  its  authority, 
or  which  it  may  own  in  whole,  or  in  part,  or  in  which  it  may 
have  any  interest  direct  or  indirect  except  such  articles  or 
commodities  as  may  be  necessary  and  intended  for  its  use 
in  the  conduct  of  its  business  as  a  common  carrier."70  We 
are  concerned  here  only  with  the  proceedings  under  this  law 
which  had  as  their  object  the  destruction  of  the  coal  com- 
bination. 

Proceedings  under  the  act  were  immediately  brought 
against  the  Delaware  and  Hudson  Railroad  to  enjoin  it  from 
transporting  coal  in  which  it  had  an  interest  through  its 
coal  company.  The  Circuit  Court  held  that  the  coal  rail- 
roads must  either  cease  transporting  coal  to  other  states 
or  divest  themselves  of  all  title  and  interest  direct  or  in- 
direct in  their  coal  properties,  by  a  compulsory  sale  of  their 
coal  lands  and  their  stocks  in  coal  companies.71  Upon  ap- 
peal, the  Supreme  Court  in  1909,  so  interpreted  the  clause 
as  to  render  it  quite  ineffective72  by  declaring  that  "inter- 
est" referred  simply  to  a  "legal"  interest,  and  that  a  rail- 
road could  not  be  said  to  be  interested  directly  or  indirectly 

70  34  Stat.  584. 

71 164  Fed.  Rep.,  217-254. 

"213  U.  S.  366-419. 


172      .  Trust  Dissolution 

in  the  mining  of  coal,  merely  because  it  owned  all  the  capital 
stock  of  a  coal  company  which  conducted  the  mining  opera- 
tions. Thus  interpreted  this  clause  affected  only  a  few  rail- 
road companies  which  directly  mined  their  own  coal  without 
the  mediacy  of  a  separate  organization.  These  companies 
proceeded  to  reorganize  their  affairs  by  creating  out  of 
their  own  funds  an  agent  corporation  to  which  the  coal  was 
transferred  before  shipment.  The  shares  of  the  new  com- 
panies were  distributed  as  stock  dividends  to  the  coal  carry- 
ing railroad  companies.  The  new  coal  companies,  having  in 
most  cases  the  same  officers  and  stockholders  as  their  re- 
spective railroad  companies,  have  paid  very  large  dividends. 
It  was  six  years  before  a  suit  carrying  indictments  of  these 
devices  to  evade  the  commodity  clause  was  brought  before 
the  Supreme  Court,  with  the  results  as  noted  later. 

Coincidently  with  the  cases  involving  an  alleged  violation 
of  the  commodity  clause,  the  Government  was  conducting  a 
suit  against  certain  anthracite  coal  roads  and  their  subsid- 
iary coal  companies  for  violation  of  the  Sherman  law.  The 
defendants  in  this  suit,  begun  in  1907,  may  be  grouped  as 
(a)  the  Reading  Company  (the  holding  company)  ;  (b) 
seven  railroad  companies;  (c)  the  respective  coal  companies 
of  the  railroads,  including  the  Temple  Iron  Company,  jointly 
owned  by  the  defendant  railroads;  and  (d)  the  individual 
operators  who  had  signed  over  their  coal  production  through 
the  percentage  contracts. 

The  Government  charged  that  the  defendants  had  en- 
tered into  a  combination  or  conspiracy  by  which  they  re- 
strained and  monopolized  the  anthracite  coal  trade,  and 
that  in  developing  the  combination,  a  number  of  contribu- 
tory acts  had  been  committed,  each  of  which  in  itself  was  in 
restraint  of  trade:  (a)  the  purchase  of  certain  railroads  by 
the  Erie;  (b)  the  defeat  through  the  Temple  Iron  Company 
of  an  attempt  to  build  an  independent  road  to  tide-water; 
(c)  the  purchase  of  the  Pennsylvania  Coal  Company  and  its 
allied  railroads  and  the  consequent  abandonment  of  a  second 
independent  outlet;  (d)  the  purchase  of  the  Central  Rail- 
road of  New  Jersey  by  the  Reading  Company;  and  (e) 
the  signing  of  the  uniform  percentage  contracts.  The  only 


Decisions  Since  1911  173 

contention  of  the  Government  that  was  sustained  by  the  Cir- 
cuit Court  in  its  decision  in  1910,  was  that  the  railroads 
had  unlawfully  combined  through  the  Temple  Iron  Company 
to  prevent  the  building  of  a  proposed  independent  railroad.73 
The  charge  that  the  defendants  had  entered  into  a  general 
combination  or  conspiracy  was  unanimously  dismissed. 

An  appeal  was  taken  and  the  Supreme  Court  rendered  a 
decision  in  December,  1912. 74  Against  the  charge  that  there 
existed  a  general  combination,  the  court  unanimously  held 
(three  judges  not  participating)  that  the  case  was  "barren 
of  documentary  evidence  of  solidarity."  The  Court  held 
that  the  Government  had  failed  to  show  any  specific  acts  or 
agreements  between  the  defendant  carriers  to  distribute  the 
total  tonnage  of  coal  according  to  a  definite  scale  of  per- 
centages. All  the  charges  of  the  Government  were  dismissed 
save  two.  The  perpetual  percentage  contracts  were  declared 
unlawful,  thereby  reversing  the  Circuit  Court  decree,  and 
were  ordered  to  be  cancelled.  The  Court  held  that  the  com- 
bination through  the  Temple  Iron  Company  was  unlawful. 
This  company,  the  Court  held,  "has  been  and  still  is  an  effi- 
cient agency  for  the  collective  activities  of  the  defendant 
carriers  for  the  purpose  of  preventing  competition  in  the 
transportation  and  sale  of  coal  in  other  States."75  The  final 
decree  provided  that  a  purchaser  of  the  properties  of  this 
company  must  be  a  bona  fide  purchaser,  not  one  in  privity 
with  or  sustaining  any  relation  in  interest,  direct  or  in- 
direct, to  any  of  the  defendants.76 

In  accordance  with  the  decree  the  directors  of  the  Temple 
Iron  Company  sold  the  stock  of  its  eight  coal  companies, 
but  they  sold  the  stock  to  Mr.  S.  B.  Thorne,  who  was  at  one 
time  general  manager  of  the  Temple  Iron  Company.77  Most 
of  the  percentage  contracts  were  terminated.  A  modifica- 
tion of  the  decree  was  secured  which  permitted  some  of  the 
contracts  to  continue.78 

"183  Fed.  Rep.  427-497. 

74  226  U.  S.  324-373. 

75  226  U.  S.  352. 
Te  Jones,  p.  217. 
"  Ibid. 

T8228  U.  S.  158. 


174  Trust  Dissolution 

When  the  court  dismissed  without  prejudice  the  charges 
against  the  minor  combinations,  including  the  purchase  of 
various  railroads  by  rival  roads,  the  legality  of  these  com- 
binations was  left  undetermined.  In  1913,  the  Government 
brought  suit  against  the  Reading  Company  and  its  affiliated 
roads  and  coal  companies,  charging  restraint  and  monopo- 
lization of  trade  in  anthracite  coal.79  It  charged  that  the 
acquisition  of  the  Central  of  New  Jersey,  and  various  other 
roads  and  coal  companies,  as  well  as  the  making  of  certain 
contracts,  were  in  violation  of  the  trust  laws.  The  decision 
of  the  Circuit  Court  in  1915  was  adverse  to  the  Government 
except  in  that  the  union  through  a  holding  company  of  the 
Philadelphia  and  Reading  Coal  and  Iron  and  the  Lehigh  and 
Wilkes-Barre  Coal  companies,  controlling  20  percent  of  the 
anthracite  output,  was  declared  illegal  and  the  defendants 
were  asked  to  present  a  plan  for  its  dissolution.  Cross  ap- 
peals have  been  taken  to  the  Supreme  Court  where  the  case 
is  still  pending. 

As  indicated  above,  the  Government,  after  a  number  of 
years,  brought  suits  against  railroads  which  circumvented 
the  commodity  clause  legislation  by  creating  their  own  coal 
companies  to  carry  on  their  coal  sales  or  operations.  The 
first  suit  was  against  the  Delaware,  Lackawanna  and  West- 
ern Railroad.  Following  the  decision  of  the  Supreme  Court 
that  a  railroad  was  not  legally  interested  directly  or  in- 
directly in  mining  coal  merely  because  it  owned  all  the  stock 
of  a  coal  company  which  conducted  the  mining  operations, 
this  railroad,  following  the  example  of  others,  organized 
the  Delaware,  Lackawanna  and  Western  Coal  Company 
whose  capital  stock  of  $6,800,000  was  subscribed  for  and 
paid  in  full  by  the  stockholders  out  of  an  extra  50  percent 
cash  dividend  declared  by  the  railroad  company.80  The  two 
companies  had  common  presidents,  officers,  and  directors. 
They  at  once  entered  into  exclusive  contracts  by  which  the 
railroad,  after  reserving  what  it  needed  for  its  engines, 
agreed  to  sell  and  the  coal  company  to  buy.  f.o.b.  the  mines, 
all  the  coal  produced  or  purchased  by  the  railroad  at  a  price 

"228  Fed.  Rep.  229. 
80  238  U.  S.  516  et  seq. 


Decisions  Since  1911  175 

equal  to  65  percent  of  the  tidewater  price  on  the  day  of 
delivery  at  the  mines.  The  coal  company  was  bound  to  ship 
the  coal  over  the  railroad  where  possible.  Thus,  the  railroad 
continued  its  mining  business,  producing  about  7,000,000 
tons  and  purchasing  about  1,500,000  tons  annually  from 
other  operators  along  its  line.  It  sold  to  the  coal  company 
about  7,000,000  annually. 

In  1913  the  Government  filed  suit  against  the  railroad 
and  coal  companies,  charging  the  defendants  with  transport- 
ing coal  in  which  they  had  an  interest  in  violation  of  the 
Commodity  Clause,  and  with  entering  into  an  unlawful  con- 
tract giving  a  monopoly  of  the  sale  of  coal  produced  along 
the  line  of  the  railroad.  The  Circuit  Court  dismissed  the 
case81  in  1914  on  the  ground  that  the  defendants  were  not 
violating  the  Commodity  Clause  as  interpreted  by  the  Su- 
preme Court,  but  in  1915  the  Supreme  Court  unanimously 
reversed  the  decree,  maintaining  that  the  unity  of  manage- 
ment existing  between  the  companies  constituted  a  viola- 
tion of  the  Commodity  Clause,  and  that  the  contract  between 
the  companies  was  a  violation  of  the  trust  laws.82  The  latter 
court  again  declared  that  the  stock  ownership  of  the  two 
companies  by  the  same  stockholders  was  not  illegal.  How- 
ever, it  held  that  if  the  railroad  continued  in  the  mjning 
business,  it  must  absolutely  dissociate  itself  from  the  coal 
before  transportation  begins  and  could  not  sell  it  through 
an  agent,  such  as  the  coal  company  was  declared  to  be,  nor 
to  any  other  buyer  not  absolutely  free  to  compete  with  the 
railroad  in  the  sale  and  purchase  of  coal.  The  Circuit 
Court,  as  directed,  entered  a  decree  enjoining  the  railroad 
from  further  transporting  coal  sold  under  the  above  con- 
tract. In  compliance  with  the  decree  the  common  directors, 
officers,  and  officers  of  the  companies  were  discontinued  and 
a  new  contract  was  entered  into  by  which  the  railroad  was 
to  sell  all  its  coal  output,  except  what  was  needed  to  run  its 
engines,  to  the  coal  company  at  a  fixed  price  instead  of  at 
a  percentage  of  the  tide-water  price,  but  the  coal  company 
was  not  denied  the  right  to  purchase  coal  from  others.  This 

81 213  Fed.  Rep.  240. 
83  238  U.  S.  516. 


176  Trust  Dissolution 

dissolution,  if  such  it  can  be  called,  is  open  to  all  the  objec- 
tions against  the  Standard  Oil  dissolution.  It  was  merely  a 
legal  one.  Under  the  extremely  favorable  circumstances  for 
cooperating,  it  cannot  be  expected  that  these  companies, 
having  common  stockholders,  interests,  and  well  established 
unity  of  action,  will  compete  after  realizing  such  enormous 
profits  through  many  years  by  such  cooperation.  Almost 
identical  charges  were  filed  against  the  Lehigh  Valley  Rail- 
road in  1914.  This  suit  was  immediately  dismissed  by  the 
Circuit  Court,  but  has  been  appealed. 

Thus  the  Government  has  endeavored  to  effect  a  dissolu- 
tion of  the  anthracite  coal  combination  in  suits  under  both 
the  Commodity  Clause  and  the  Sherman  law.  The  principle 
and  intent  of  the  former  of  these  laws  has  met  with  very  little 
success  in  its  application,  because  of  the  first  interpretation 
put  upon  it  by  the  Supreme  Court.  A  decision  of  this  court 
six  years  later  restored  partial  vitality  to  the  Clause.  But 
even  should  this  and  other  decisions  make  it  enforceable  in 
other  industries,  it  is  very  doubtful  if  it  will  restore  com- 
petitive conditions  in  the  anthracite  industry  since  the  rail- 
roads or  their  subsidiaries  now  own  or  control  over  90  per- 
cent of  the  annual  output,  and  even  a  larger  percentage  of 
the  unmined  coal.  Mr.  Jones  concludes  that  "Were  the  coal 
companies  to  be  separated  from  their  present  railroad  con- 
trol, the  result,  in  all  probability,  would  be  either  the  organ- 
ization of  a  coal  trust,  or  an  agreement  of  some  kind  among 
the  coal  companies  to  restrict  output  or  to  fix  prices." 

Prosecutions  to  dissolve  the  coal  combination  under  the 
Sherman  law  also  have  proved  unsuccessful.  In  the  first 
attempt,  the  courts  held  that  there  was  not  enough  "docu- 
mentary evidence"  to  convict.  If  successful  prosecution  in 
this,  as  well  as  in  other  industries,  is  dependent  upon  docu- 
mentary evidence,  conviction  will  become  increasingly  diffi- 
cult. Some  of  the  most  dangerous  monopolistic  controls  are 
wielded  without  the  aid  of  formal  agreements  and  in  future 
prosecutions  such  evidence  will  be  more  difficult  to  obtain. 
Even  though,  through  the  present  attempts  to  break  up  the 
minor  combinations,  or  through  other  remedial  measure,  the 
83  Jones,  p.  219, 


Decisions  Since  1911 


177 


dissolution  of  the  coal  combination  should  be  finally  effected, 
it  would  be  exceedingly  difficult,  in  view  of  concentration 
within  a  few  hands  of  substantially  the  entire  supply  of  an- 
thracite coal,  to  prevent  the  formation  of  an  "entente  cor- 
diale"  among  the  companies  which  would  make  it  possible  to 
maintain  prices  and  to  direct  the  entire  policy  of  the  in- 
dustry. 


CHAPTER  VI 

DECISIONS  SINCE  1911     ( CONTINUED) 
THE  STANDARD  SANITARY  MANUFACTURING  COMPANY  1 

THE  "Bath  Tub  Pool,"  organized  early  in  1910,  repre- 
sents an  attempt  to  build  up  a  monopoly  under  the  cover 
of  patent  rights  in  the  sanitary  enamel  ware  business.  Six- 
teen corporations  and  thirty-four  individuals,  who  controlled 
about  85  percent  of  the  production  of  sanitary  enameled 
iron-ware  such  as  bath-tubs,  tanks,  sinks,  drinking  fountains 
and  articles  of  like  nature,  entered  into  combination  agree- 
ments for  the  purpose  of  limiting  the  output  and  fixing  the 
sale  prices  of  their  products.2  There  remained  outside  the 
combination  only  six  manufacturers  who  controlled  about  15 
percent  of  the  trade. 

The  combined  manufacturers  agreed  to  sell  the  different 
grades  of  enamel  ware  at  prices  and  on  terms  fixed  in 
schedules  or  arranged  by  a  committee  of  six  from  their 
number,  and  to  sell  only  to  jobbers  who  should  sign  the 
resale  price  contracts  prepared  by  the  combination.  To 
secure  the  loyalty  of  the  manufacturers  who  entered  the 
combination,  powerful  pressure  was  brought  to  bear  through 
the  manipulation  of  royalties  on  patented  automatic  dredgers 
which  were  used  for  distributing  the  enameling  powder  over 
the  surface  of  the  iron  ware  while  at  very  high  temperatures. 
There  were  three  kinds  of  patented  dredgers,  each  controlled 
by  a  different  company.  The  dredgers  competed  for  the 
same  work  and  were  very  useful  but  they  were  not  essential 
in  the  manufacture  of  the  ware.3  One  of  the  first  acts  of 

*226  U.  S.  20-98;  191  Fed.  Rep.  172-194;  Stevens,  W.  S.,  A  Group 
of  Trusts  and  Combinations,  Quart   Jour,  of  Econ.,  V.  26,  pp.  617-625. 
2  226  U.  S.  43-4. 
'  191  Fed.  Rep.  184-7. 

I78 


Decisions  Since  1911  179 

the  combination  was  to  have  the  patents  of  the  dredgers 
transferred  to  a  single  company  which  should  act  as  licensor 
to  the  other  corporations.  The  Standard  Sanitary  Manu- 
facturing Company,  which  controlled  50  percent  of  the 
enamel  ware  production,  acted  in  this  capacity.4  Each  man- 
ufacturer agreed  to  pay  a  monthly  royalty  of  $5.00  per  day 
for  the  dredgers  for  each  furnace  in  use,  but  if  the  manu- 
facturer observed  all  the  terms  of  the  combination  agree- 
ment, 80  percent  of  the  royalty  was  returned.5  Since  the 
defendants  owned  195  furnaces,  or  78  percent  of  the  total 
number,  and  the  payment  of  the  rebates  was  kept  four 
months  in  arrears,  there  were  usually  from  $40,000  to 
$50,000  due,  which  would  be  forfeited  if  the  combination 
agreements  were  violated.6 

The  combination  also  agreed  to  sell  goods  only  to  job- 
bers who  signed  a  resale  price  contract  which  bound  the  job- 
ber to  purchase  exclusively  from  the  combination  and  to  sell 
only  at  prices  and  terms  named  in  the  resale  lists.  More 
than  four-fifths  of  the  jobbers  of  the  country  signed  these 
contracts.  To  secure  the  loyalty  and  exclusive  service  of 
the  jobbers  a  system  of  rebates  amounting  to  from  5  to  7% 
percent  of  the  sale  prices  was  adopted.7  The  payments  of 
the  rebates  were  also  kept  in  arrears  in  amounts  aggregating 
about  $500,000  and  jobbers  violating  their  contracts  for- 
feited the  rebates  in  arrears.8  The  country  was  divided  also 
into  zones  and  jobbers  were  required  to  sell  at  the  prices 
established  for  each  zone. 

The  monopolistic  power  thus  obtained  was  used  to  con- 
trol prices.  The  combination  not  only  prevented  reductions 
in  price  that  would  otherwise  have  been  made,  but  it  raised 
prices  considerably  in  a  business  amounting  to  from 
$10,000,000  to  $14,000,000  annually.9 

In  1910  the  Government  filed  a  suit  to  dissolve  the  com- 
bination. The  defendants  were  charged  with  forming  a  com- 

4  226  U.  S.  36. 

5 191  Fed.  Rep.  174. 

"Ibid. 

'  Ibid. 

8  Ibid. 

9  Ibid.,  pp.  176,  180-1. 


180  Trust  Dissolution 

bination,  under  cover  of  patent  licensing  arrangements,  in 
order  to  restrain  competition  and  enhance  prices  of  enamel 
ware.  It  was  claimed  by  the  combination  that  the  patented 
automatic  dredgers  made  their  contracts  and  agreements 
lawful,  but  the  Circuit  Court  held  that  the  dredgers  were  in 
no  wise  "essential"  but  only  "useful"  tools.10  The  agree- 
ment among  the  defendants  was  held  to  be  for  no  other  pur- 
pose than  to  fix  prices  and  restrict  competition.11  The 
court  enjoined  the  signing  of  restrictive  contracts  which 
were  forced  upon  the  jobbers  before  they  were  allowed  to 
handle  the  wares.  The  wares  were  unpatented  and  the  con- 
tracts were  held  to  constitute  restraints  of  trade  not  covered 
by  patent  rights.  Relief  was  given  as  prayed  by  the  Gov- 
ernment. The  Supreme  Court  affirmed  this  decree  in  1913. 12 
In  addition  to  the  above  suit  a  criminal  indictment  under 
the  Sherman  law  was  returned  in  1910  against  the  same  de- 
fendants, charging  the  same  acts.  After  a  trial  lasting 
three  months,  the  jury  in  the  case  reported  a  disagreement 
in  191S.  Retrial  early  in  the  following  year  resulted  in  a 
verdict  of  guilty,  and  fines  aggregating  $51,006  were  im- 
posed.13 
s 

THE  UNITED   SHOE  MACHINERY  COMPANY  14 

The  study  of  the  legal  proceedings  against  the  United 
Shoe  Machinery  Company  is  important  because  it  shows 
a  high  degree  of  monopoly  secured  by  means  of  the 
control  of  certain  patents.  The  boot  and  shoe  business 
ranked  eighth  in  importance  among  the  manufacturing  in- 
dustries of  the  United  States  in  1909.  There  were  1,343 
shoe  manufacturers,  all  independents,  having  an  aggregate 

10 191  Fed.  Rep.  186. 

11  Ibid.,  p.  182. 

"226  U.  S.  20. 

"The  Federal  Antitrust  Laws,  Washington,  1916,  p.  65. 

"Roe,  Richard — The  United  Shoe  Machinery  Company,  Jour, 
of  Pol.  Econ.,  V.  21,  pp.  938-953.  (Cont'd.)  V.  22,  pp.  43-63;  Mon- 
tague, G.  W. — The  Conservation  of  Business  Opportunity,  Jour,  of  Pol. 
Econ.,  V.  20,  1912,  pp.  618-626;  227  U.  S.  202-10;  222  Fed.  Rep.  349- 
380;  227  Fed.  itep.  507-10;  234  Fed.  Rep.  127-30. 


Decisions  Since  1911  181 

capital  stock  of  $277,468,000,  and  products  valued  »at 
$442,600,000. 15  While  trust  control  had  made  no  head- 
way in  the  manufacture  of  shoes  it  was  very  complete  in  the 
manufacture  of  shoe  making  machinery. 

Prior  to  the  Civil  War,  the  cost  of  sewing  the  welt  and 
stitching  the  sole  on  a  pair  of  shoes  by  hand  ranged  from 
60  to  75  cents.  The  invention  of  the  Goodyear  welting  and 
stitching  machines  at  that  time  reduced  the  cost  of  this 
work  to  about  10  cents  per  pair  of  which  4  cents  were  for 
the  use  of  the  machines  and  6  cents  for  labor.  This  meant 
a  revolution  in  the  industry.  One  invention  followed  an- 
other until  no  less  than  fifty-eight  machines,  and  frequently 
twice  that  number,  were  used  to  make  a  good  shoe.  Among 
these,  four  were  essential  for  the  process  of  shoe  manufacture. 
These  were  (1)  the  lasting  machines,  including  all  those 
used  for  lasting  the  uppers  of  shqes ;  (2)  the  heeling 
machines,  used  for  preparing  and  attaching  the  heels;  (3) 
the  welt  sewing  and  outsole  stitching  machines;  (4)  the  me- 
tallic fastening  machines,  used  for  preparing  and  attaching 
metallic  fastenings  on  shoes.  These  machines  were  expen- 
sive to  manufacture  and  as  they  were  made  under  patents 
the  shoe  manufacturers  were  forced  to  buy  from  the  com- 
panies controlling  the  patents. 

Until  1899  four  independent  shoe  machinery  companies 
manufactured  and  sold  or  leased  from  70  to  80  percent  of 
these  four  kinds  of  essential  machines.16  These  four  com- 
panies were  the  Goodyear  Shoe  Machinery  Company,  the 
Consolidated  and  McKay  Lasting  Machine  Company,  the 
McKay  Shoe  Machinery  Company,  and  the  Eppler  Welt 
Machine  Company,  all  of  the  state  of  Maine.  In  1899  the 
four  companies  united  under  a  liberal  charter  to  form  the 
United  Shoe  Machinery  Company  of  New  Jersey,  with  an 
authorized  capital  stock  of  $25,000,000.  The  new  company 
took  over  all  the  assets  of  the  above  companies  and  manu- 
factured at  a  single  new  factory  all  the  machines  formerly 
made  by  the  separate  companies.  Mr.  Louis  Brandeis,  now 
a  member  of  the  Supreme  Court,  was  a  director  and  legal 

15  Montague,  Jour,  of  Pol.  Econ.,  V.  20,  pp.  621-2. 
"227  U.  S.  205. 


182  Trust  Dissolution 

advisor  of  the  company  for  nearly  eight  years  following  its 
organization.17 

Not  content  with  the  extent  of  monopoly  control  result- 
ing from  the  act  of  combination  and  the  exclusive  char- 
acter of  its  patent  rights,  the  United  Shoe  Machinery  Com- 
pany sought  a  more  complete  control  through  a  compre- 
hensive and  effective  system  of  leases.  Before  the  merger, 
the  separate  companies  both  sold  and  leased  the  patented 
machines  to  the  shoe  manufacturers,  but  after  the  merger 
all  such  machines  were  only  leased  under  binding  contracts 
of  seventeen  years  duration  in  which  the  lessee  agreed18  not 
to  use  any  machine  of  the  company  upon  any  foot-wear 
which  had  not  had  certain  essential  operations  performed 
upon  it  by  other  machines  leased  from  the  company;  to  use 
the  leased  machines  at  fullest  capacity ;  to  use  exclusively 
the  leased  machine  for  the  work  for  which  it  was  designed; 
to  obtain  all  repairs  and  supplies  for  the  machines  from  the 
lessor;  to  use  patented  insoles  made  on  lessor's  machinery 
only  in  connection  with  foot-wear  manufactured  by  machin- 
ery leased  from  the  company;  to  lease  from  the  company 
any  additional  machinery  which  may  be  needed  for  work  in 
the  same  department  where  leased  machines  are  used;  and 
as  a  penalty  for  violating  the  contract  the  company  re- 
served the  right  to  terminate  any  of  the  leases  and  remove 
all  the  leased  machines.  On  March  1,  1911  the  company 
had  90,276  machines  leased  in  the  United  States.19  The 
leases  were  for  seventeen  years  regardless  of  the  date  on 
which  the  patents  expired.  This  tended  to  make  permanent 
the  monopoly  of  the  patents  because  the  Shoe  Machinery  com- 
pany continued  to  acquire  the  best  patented  machines  and 
processes,  and  to  link  up  the  leases  of  unpatented  machines 
with  those  patented. 

The  tieing  clauses,  as  they  were  called,  of  these  leases 
worked  far  more  injustice  to  the  manufacturers  of  shoe  ma- 
chinery than  to  the  manufacturers  of  shoes.  All  shoe  manu- 
facturers, big  and  little,  were  apparently  treated  alike.  In 

"Roe,  Jour,  of  Pol.  Econ.,  V.  21,  p.  943. 

18  Ibid. 

"Ibid. 


Decisions  Since  1911  183 

return  for  a  royalty  each  had  the  use  of  the  best  modern 
machinery  without  initial  cost  to  himself,  and  each  paid 
according  to  the  amount  of  service  received.  The  company 
kept  the  machines  in  repair  and  was  interested  in  the  out- 
put of  the  shoe  manufacturer.  For  all  the  machines  fur- 
nished by  the  company  the  royalty  did  not  exceed  8  cents 
per  pair.20  For  the  higher  grade  shoes  it  was  about  5^2 
cents,  for  the  average  grade  about  2%  cents,  and  for  over 
164,000,000  pairs  of  the  annual  production  the  royalty  was 
1%  cents.21  Many  of  the  small  shoe  manufacturers  de- 
clared they  could  not  compete  with  the  larger  manufacturers 
except  for  the  equal  treatment  in  the  matter  of  royalties  and 
the  small  capital  requirement.22  Many  believed  that  the 
leasing  system  had  prevented  a  trust  in  the  shoe  making  in- 
dustry. However,  the  shoe  manufacturer  was  forced  to  buy 
all  his  machinery  from  the  United  Shoe  Machinery  Company 
or  buy  it  all  from  independents,  and  the  latter  did  not  have 
all  the  essential  machines. 

These  tieing  clauses  resulted  in  forcing  many  companies 
engaged  in  the  manufacture  of  shoe  machinery  to  close  their 
plants  or  to  sell  out.  Beside  two  other  companies  acquired 
at  the  time  of  the  merger,  the  United  Shoe  Machinery  Com- 
pany, between  1899  and  1911,  acquired  the  business  of  sixty 
different  concerns  or  persons,  of  which  number  thirty-seven 
were  competing  companies.23  The  most  notable  of  these  was 
the  T.  G.  Plant  Company.  Mr.  Plant  succeeded  in  invent- 
ing a  whole  line  of  shoe  machinery  of  his  own.  Almost  before 
selling  any  of  his  machines  his  business  and  patents  were 
acquired  by  the  company  for  $6,000,000.24  Many  of  the 
acquisitions  were  merely  patents  and  improved  processes. 
The  companies  and  persons  whose  interests  were  acquired 
agreed  not  to  reengage  in  the  business,  and  also  to  turn  over 
any  invented,  improved  or  acquired  processes  and  patents. 
Thus,  while  patents  formed  the  basis  of  control,  it  was  only 
by  means  of  restrictive  contracts  with  shoe  manufacturers, 

20  234  Fed.  Rep.  134. 

21  Roe,  Jour,  of  Pol.  Econ.,  V.  31,  p.  944. 

22  Montague,  Jour,  of  Pol.  Econ.,  V.  20,  p.  624-6. 
28  222  Fed.  Rep.  3T2. 

24  Ibid.,  p.  3T6. 


184  Trust  Dissolution 

covenants  with  vanquished  competitors,  the  acquisition  of 
many  competing  concerns,  sometimes  at  enormous  prices, 
and  the  taking  over  of  new  processes,  patents  and  trade 
marks,  that  the  United  Shoe  Machinery  Company  was  able 
to  maintain  its  monopoly. 

The  Government  claimed  that  the  United  Shoe  Machinery 
Company  manufactured  98  percent  of  the  shoe  machinery 
used  in  the  United  States,  and  that  nearly  all  of  the  1,500 
shoe  manufacturers,  having  a  combined  annual  output  of 
about  300,000,000  pairs  of  shoes,  have  business  relations 
with  this  company.25  The  effectiveness  of  the  tieing  clauses 
in  preventing  competition  is  further  shown  by  the  fact  that 
this  company  has  a  monopoly  control  in  many  European 
countries  and  Canada  where  the  same  leasing  policy  is  pur- 
sued.26 

Several  attempts  have  been  made  to  break  this  monopoly. 
In  1907  Massachusetts  passed  a  law  prohibiting  leases  with 
tieing  clauses  in  connection  with  patented  machinery,  and 
prohibiting  also  the  offering  of  unreasonable  discounts  or 
other  advantages.27  Thereupon,  the  United  Shoe  Machin- 
ery Company  attached  to  all  its  leases  a  rider  providing  that 
"any  and  all  agreements,  stipulations,  provisions,  and  con- 
ditions hereinbefore  printed  in  this  instrument,  which  are  in 
violation  *  *  *  (of  the  law),  if  there  are  any  such,  are 
hereby  stricken  out  before  execution  and  are  not  agreed  to 
nor  made  a  part  of  this  contract."28  In  this  way,  and 
apparently  without  violating  the  law  of  the  state,  the  tieing 
clauses  were  continued  unchanged  and  as  effectively  as  be- 
fore. 

In  1911,  a  number  of  shoe  manufacturers  organized  the 
Shoe  Manufacturers'  Alliance  in  order,  as  they  stated,  "to 
secure  a  change  in  the  methods  now  pursued  by  the  United 
Shoe  Corporation,  which  to-day  in  effect  monopolized  the 
shoe  machinery  business  in  this  country  through  its  system 
of  leases  with  tieing  clauses."  29  In  this  same  year  the  Gov~ 

25  227  Fed.  Rep.  508. 

26  Roe,  Jour,  of  Pol.  Econ.,  V.  22,  pp.  48-53. 
"Ibid.,  V.  21,  p.  946. 

28  Ibid. 
"Ibid. 


Decisions  Since  1911  185 

eminent  filed  suit  to  dissolve  the  company  and  to  have  an- 
nulled the  tieing  clauses  as  furthering  combination  in  re- 
straint of  trade.  The  suit  was  dismissed  by  the  Circuit  Court 
in  the  following  year,  but  an  appeal  was  made  by  the  Gov- 
ernment. 

In  1912,  two  of  the  three  members  of  the  Canadian  In- 
vestigation Board  reported  that  "the  United  Shoe  Machin- 
ery Company  is  a  combine  and  *  *  competition  in  the 
manufacture,  production,  sale  and  supply  of  shoe  machinery 
in  Canada  has  been  unduly  restricted  and  prevented."  30 

In  1913,  the  Supreme  Court  rendered  an  opinion  in  the 
case.  The  court  held  that  "the  combination  was  simply  an 
effort  after  greater  efficiency.  The  business  of  the  several 
g-roups  that  combined  as  it  existed  before  the  combination, 
is  assumed  to  have  been  legal.  The  machines  are  patented, 
making  them  a  monopoly  in  any  case.  *  we  can  see  no 

greater  objection  to  one  corporation  manufacturing  70  per- 
cent of  three  non-competing  groups  of  patented  machines 
collectively  used  for  making  a  single  product  than  to  three 
corporations  making  the  same  proportion  of  one  group 
each."  31  The  validity  of  the  leases  was  not  considered  by  the 
court  at  this  time  because  they  were  not  alleged  to  have 
been  contemporaneous  with  the  formation  of  the  combina- 
tion complained  of.  In  the  same  year  another  petition  was 
filed  against  the  company  seeking  to  have  the  tieing  clauses 
annulled.  In  1915  the  Circuit  Court  sustained  the  legality 
of  the  leases,  as  well  as  of  the  combination.32  The  Gov- 
ernment appealed  from  this  decision  and  the  case  is  now 
pending. 

The  Shoe  Machinery  Company  continued  to  make  seven- 
teen-year leases  after  the  passage  of  the  Clayton  Act.33  In 
October,  1915,  the  Government  filed  a  petition  against  the 
company,  charging  that  the  tieing  clauses  in  the  leases  were 
in  violation  of  Section  3  of  this  Act  which  declares  it  to  be 
unlawful  for  any  person  to  lease,  sell  or  contract  for  the 
sale  of  goods  or  machinery,  patented  or  unpatented,  or  to 

80  Roe,  Jour,  of  Pol.  Econ.  V.  22,  p.  57. 

81  227  U.  S.  217,  218. 

82  222  Fed.  Rep.  349. 

88  227  Fed.  Rep.  507-8. 


186  Trust  Dissolution 

fix  a  pr;<ie  therefor,  or  discount,  or  rebate,  upon  such  price, 
on  the  condition  that  the  lessee  or  purchaser  shall  not  use 
or  deal  in  the  goods  of  competitors  or  the  lessor  or  seller, 
where  the  effect  may  be  to  substantially  lessen  competition 
or  tend  to  create  a  monopoly.34  In  the  bill  the  Govern- 
ment alleged  that  the  defendant  corporation  still  controlled 
56  other  concerns  engaged  in  the  manufacture,  sale,  and 
leasing  of  shoe  machinery,  or  supplies,  and  that  they  con- 
trolled 98.5  percent  of  the  shoe  machinery  business  of  the 
United  States.35  Later  in  the  year  the  Government  applied 
to  the  court  for  a  preliminary  injunction  against  the  use  of 
these  tieing  leases  while  the  suit  against  the  company  was 
pending.36  The  court  declared  that  Section  3  of  the  Clay- 
ton Act  was  directed  by  Congress  at  the  Shoe  Machinery 
Company,  and  that  all  the  objectionable  clauses  of  the  leases 
were  plainly  in  violation  of  the  statute.37  A  preliminary 
injunction  was  granted,  but  upon  appeal  the  claim  for  such 
an  injunction  was  abandoned.38  A  motion  of  the  defendants 
to  dismiss  the  Government's  suit  was  denied  in  June,  1916. 39 
The  conclusion  of  the  Supreme  Court  that  the  Shoe 
Machinery  Company  in  1899  was  a  combination  of  non-com- 
peting groups  and  therefore  it  made  no  difference  whether 
the  companies  remained  separate  or  became  merged  will  not 
be  accepted  by  all.  At  the  outset  these  groups  were  by  no 
means  non-competing  and  have  become  much  less  so  since. 
The  merger  greatly  increased  their  combined  influence  and 
power.  The  competition  which  existed  and  would  have  con- 
tinued to  exist  in  supplying  various  kinds  of  shoe  machinery 
had  the  companies  remained  separate  has  been  eliminated. 
After  the  merger  they  united  their  efforts  to  suppress  com- 
petition. After  securing  valuable  patent  rights  and  in  effect 
perpetuating  these  through  tieing  clauses  which  covered  both 
patented  and  unpatented  machines,  and  after  obtaining  con- 
trol of  56  competing  concerns  in  addition  to  other  interests, 

14  234  Fed.  Rep.  127. 
88  234  Fed.  Rep.  pp.  135-6. 
38  227  Fed.  Rep.  p.  507. 
37  Ibid.,  pp.  509-10. 
88  232  Fed.  Rep.  1023. 
88  234  Fed.  Rep.  127. 


Decisions  Since  1911  187 

during  a  period  of  eighteen  years,  the  United  Shoe  Machin- 
ery Company  surely  cannot  be  regarded  in  the  same  light 
as  it  was  in  1899,  even  though  it  were  granted  that  the 
groups  were  non-competing  at  that  time.  Whether  the  tieing 
clauses  be  found  to  exceed  the  patent  rights  or  not  the  con- 
sensus of  opinion  is  that  they  should  be  eliminated. 

NOTE.  On  May  20,  1918,  seven  years  after  the  case  was 
begun,  the  Supreme  Court  rendered  a  decision  in  favor  of 
the  United  Shoe  Machinery  Company.  The  court  held  that 
the  company's  magnitude  was  the  result  and  cause  of  its  effi- 
ciency ;  that  its  size  or  power  had  not  been  oppressively  used ; 
and  that  its  dissolution,  if  effected,  would  benefit  neither  the 
shoe  business  nor  the  public  and  would  be  detrimental  to 
meeting  urgent  war  needs.  Only  four  judges  concurred  in 
the  decision;  three  dissented,  while  two,  Justices  Brandeis 
and  McReynolds,  on  account  of  previous  connection  with  the 
case,  did  not  participate.  In  their  previous  connection  both 
had  appeared  against  the  company. 

THE  ST.  Louis  TERMINAL,  RAILROAD  ASSOCIATION 

The  rule  or  reason  laid  down  by  the  Supreme  Court  in 
the  Standard  Oil  decision  was  strikingly  applied  in  the  case 
against  the  St.  Louis  Terminal  Railroad  Association,  de- 
cided the  following  year.4?  At  St.  Louis,  a  point  through 
which  an  enormous  volume  of  traffic  passed,  two  important 
physical  obstacles  were  encountered  by  the  railroads.41  The 
first  was  to  secure  passage  facilities  across  the  Mississippi 
River.  About  half  of  the  twenty-four  railroads  converging 
at  St.  Louis  terminated  on  the  east  bank  of  the  river.  Since 
prohibitive  costs  prevented  each  separate  road  from  having 
its  own  river  bridge  they  relied  upon  associated  action  for 
securing  crossing  facilities.  Prior  to  1889  the  roads  ar- 
ranged with  two  bridge  corporations  and  a  ferry  line  for  the 
necessary  passage  across  the  river.  The  second  physical 
obstacle  was  to  secure  an  entrance  into  the  municipal  limits 

40  224  U.  S.  383. 

41  Rip  ley,  Railroads  Finance  and  Organization,  pjp.  559-561. 


188  Trust  Dissolution 

of  St.  Louis  which  is  located  upon  hills  extending  close  to 
the  river  banks  making  entrance  by  rail  from  the  west  im- 
possible except  along  certain  limited  approaches.  Not  a 
single  railroad  passed  through  the  city.  In  order  to  provide 
for  the  necessary  connections  into  the  city  several  transfer 
and  terminal  companies  had  come  into  existence. 

This  was  the  situation  in  1889.  In  this  year  fifteen  trunk 
lines  organized  the  St.  Louis  Terminal  Railroad  Association. 
This  association  acquired  the  two  bridge  corporations  and 
the  ferry  line,  which  controlled  the  facilities  for  passage 
across  the  river,  and  also  the  transfer  and  terminal  com- 
panies, which  had  the  only  connections  into  the  town.  The 
stock  ownership  of  the  Terminal  Association  was  evenly  di- 
vided among  the  fifteen  trunk  lines  and  no  new  roads  could 
enter  the  association  without  unanimous  consent.  The  other 
lines  and  those  of  the  future  were  made  dependent  upon  the 
association. 

After  a  number  of  years  some  of  the  outside  carriers,  in- 
cluding the  Rock  Island,  began  to  complain  that  they  were 
not  able  to  obtain  the  same  treatment  as  to  facilities  as  those 
enjoyed  by  the  association  carriers.  They  claimed  that  the 
whole  arrangement  was  detrimental  to  the  public  interest 
and  was  a  violation  of  the  Sherman  law.  In  1905  the  Gov- 
ernment brought  suit  against  the  association  charging  it 
with  maintaining  a  combination  in  violation  of  the  Sher- 
man law,  and  asking  that  the  defendant  railroads  be  en- 
joined from  continuing  to  operate  Eads  Bridge  and  Mer- 
chants Bridge  as  a  common  agency  of  interstate  commerce.42 
The  trial  before  the  Circuit  Court  resulted  in  a  disagree- 
ment of  the  circuit  judges  and  the  case  was  carried  to  the 
Supreme  Court  which  remanded  it  back  for  further  proceed- 
ings. The  Circuit  Court  then  dismissed  the  case,  but  an 
appeal  was  taken,  and  in  1912  the  Supreme  Court  reversed 
the  decree  of  the  Circuit  Court,  and  again  remanded  the  case 
with  directions  to  enter  a  decree.43  A  final  decree  was  en- 
tered in  1914  and  was  later  affirmed  by  the  Supreme  Court. 

The  St.  Louis  Terminal  Association  was  held  to  be  an  un- 

42  The  Federal  Antitrust  Laws,  Washington,  1916,  pp.  52-3. 
"Ibid, 


Decisions  Since  1911  189 

lawful  combination,  but  instead  of  entering  a  decree  of  dis- 
solution as  would  undoubtedly  have  followed  according  to 
the  earlier  interpretations  of  the  law,  the  Supreme  Court, 
following  the  rule  of  reason,  rendered  a  decision  favorable 
to  all  concerned,  the  Terminal  Association,  the  aggrieved 
railroad  companies  and  the  public.44  The  court  declared 
that  the  violation  grew  "out  of  administrative  conditions 
which  may  be  eliminated  and  the  obvious  advantage  of  uni- 
fication preserved"  in  such  a  manner  as  "will  amply  vindicate 
the  wise  purpose  of  the  statute  and  will  preserve  to  the  pub- 
lic a  system  of  great  public  advantage."45  Instead  of  break- 
ing up  the  cooperative  arrangement  of  the  association,  which 
would  have  involved  great  economic  waste,  expense  and  in- 
convenience to  the  public,  the  court  prescribed  certain 
changes  in  the  organization  and  practice  of  the  association, 
which  would  allow  it  lawfully  to  continue.48  One  of  these 
changes  provided  for  admitting  any  existing  or  future  rail- 
ways to  joint  ownership  and  control  in  the  association.  An- 
other extended  the  use  of  the  facilities  of  the  transfers  and 
terminals  to  any  carriers  not  desiring  to  become  stockhold- 
ers in  the  association.  A  third  change  annulled  the  existing 
restrictions  to  the  use  of  the  terminal  company's  lines. 
Arbitrary  charges  for  trans-Mississippi  traffic  originating 
within  one  hundred  miles  were  also  prohibited. 

The  decision  is  significant  in  illustrating  how  a  reconcil- 
iation of  the  public  interests  with  the  financial  and  operating 
necessities  of  the  railroads  was  effected  without  destroying 
efficiency  and  competition.  It  has  been  pointed  out  by  some 
writers  that  this  decision  suggests  the  best  solution  for  many 
instances  where  the  antitrust  laws  are  violated. 


THE  NEW  HAVEN  RAILROAD 

The  rise  and  fall  of  the  New  Haven  railroad  monopoly, 
embracing  nearly  all  of  New  England,  belongs  to  recent  his- 

44  224  U.  S.  383. 

48  Ibid.,  pp.  410-11. 

49  224  U.  S.  411-3- 


190  Trust  Dissolution 

tory.47  Prior  to  1900  two  railroad  monopolies  had  been 
formed  in  New  England,  each  respecting  the  territory  of  the 
other.  The  Boston  and  Albany  Railroad  running  due  west 
across  Massachusetts  marked  the  line  of  division.  South 
of  this  line  during  the  90's  the  New  Haven  company  aggres- 
sively, and  often  by  discreditable  means,  merged  its  com- 
petitors, both  large  and  small,  as  well  as  local  and  discon- 
nected transportation  interests,  into  the  New  Haven  mo- 
nopoly. At  the  same  time  the  Boston  and  Maine  built  up  a 
similar  but  larger  monopoly  control  in  the  territory  north 
of  the  Boston  and  Albany  line.  In  1900,  the  New  Haven 
acquired  control  of  the  Boston  and  Albany  by  lease.  This 
left  the  transportation  business  about  equally  divided  be- 
tween the  two  great  territorial  monopolies,  each  having  over 
2,000  miles  of  line  branching  out  from  Boston. 

The  New  Haven  rapidly  extended  its  control.  In  1901 
the  Central  New  England  and  the  New  York,  Ontario  and 
Western  railroads  were  acquired,  giving  it  direct  access  to 
the  anthracite  coal  fields  and  to  the  Great  Lakes,  ancl  also 
a  new  route  across  the  Hudson  River.  Within  three  years, 
almost  all  of  the  numerous  competing  or  connecting  electric 
trolley  lines  throughout  Connecticut,  Rhode  Island  and  west- 
ern Massachusetts  were  acquired.  The  climax  came  in  1907 
when  the  New  Haven  acquired  a  controlling  interest  in  the 
Boston  and  Maine,  thus  uniting  the  two  territorial  monop- 
olies. The  Albany-New  York  Central  was  the  only  inde- 
pendent line  into  Boston,  and  in  1911  this  road  was  brought 
into  the  New  Haven  monopoly  through  a  co-operative  ar- 
rangement whereby  the  profits  or  losses  were  equally  shared. 
At  this  time  the  acquisition  of  the  Rutland  Railroad  gave 
an  outlet  both  to  Lake  Ontario  and  Montreal. 

However,  the  success  of  the  New  Haven  transportation 
monopoly  was  dependent  upon  the  control  of  steamship  lines 
as  well  as  railroads.48  In  1893  twenty  boat  lines  operated 
by  seventeen  companies  conducted  the  New  England  water 
transportation.  Nine  new  boat  lines  were  added.  To  secure 

47  Ripley — Railroads,    Finance    and    Organization,    pp.    251-8 j   420-3; 
462-73;  571;  3. 

48  Ibid.,  p.  469, 


Decisions  Since  1911  191 


control  of  this  coastwise  business  the  New  Haven  acquired 
within  a  few  years  twenty-two  of  the  twenty-nine  boat  lines. 
Some  of  the  companies  were  purchased  in  the  open  mar- 
ket, while  others  were  forced  to  sell  after  encountering  most 
unfair  competition.  In  order  to  make  its  control  more  com- 
plete and  permanent  the  New  Haven,  by  various  means,  se- 
cured control  of  all  the  available  water  front,  not  only  at 
Boston  but  all  along  the  seaboard  of  New  England,  giving 
an  absolute  control  of  about  90  percent  of  the  water  trans- 
portation of  the  New  England  States.49 

The  monopoly  was  constantly  enlarged  by  purchases  re- 
gardless of  cost.  From  1903  to  1912  the  outstanding  securi- 
ties of  the  company  increased  from  $93,000,000  to 
$417,000,000,  although  the  operated  railroad  mileage  in- 
creased only  fifty  miles.50  Much  more  than  half  of  the  in- 
crease was  invested  in  trolley  companies,  steamship  lines  and 
electric  light  and  power  plants.  Both  the  financial  and 
operating  management  of  the  New  Haven  under  the  entire 
Mellen-Morgan  regime  was  corrupt  and  an  unparalleled  dis- 
regard was  shown  alike  for  the  interests  of  the  public,  the 
stockholders,  and  the  investors.  Gross  overcapitalization 
occurred;  frequently  there  was  complete  break-down  of  ser- 
vice resulting  from  terrible  accidents ;  great  losses  and  de- 
lays were  common.  The  corruption  included  large  secret 
profits  to  insiders;  falsification  of  corporate  accounts;  dis- 
tribution of  unearned  dividends ;  the  breaking  of  solemn 
agreements  of  every  sort;  lack  of  personal  honor;  and  the 
violation  of  every  principle  of  political  decency,  including 
wholesale  bribery  of  the  legislature,  the  press,  and  influential 
citizens,  inf  order  to  force  desired  legislation  or  to  thwart 
remedial  legislation  demanded  by  the  public.51  After  a 
bitter  and  corrupt  political  campaign  in  1913,  a  new  public 
service  commission  was  established,  but  the  New  Haven  sys- 
tem was  already  nearly  destroyed  by  its  own  corruption. 
The  stockholders  began  to  see  the  real  situation — that  both 
principal  and  income  were  endangered  because  of  losses  on 

49Ripley,   Railroads.    Finance  and  Organization,  p.  469. 

60  Ibid.,  p.  252. 

61  Ibid.,  pp.  472-3. 


192  Trust  Dissolution 

all  sides.  The  price  of  New  Haven  stock,  which  for  twenty 
years  prior  to  1906  had  usually  been  $200  or  more  per 
share,  gradually  declined  until  in  1913,  it  was  worth  only 
about  $60,  and  the  low  point  of  $43  was  reached  early  in 
1915. 

Efforts  to  curb  the  New  Haven's  rapid  concentration  of 
power  had  been  made  in  vain.  In  1908  a  decree  of  the  Su- 
preme Court  of  Massachusetts  enjoined  the  company  from 
holding  stocks  in  any  trolley  lines  in  the  state  after  July 
1,  1909.52  This  brought  the  road  to  terms  and  a  working 
compromise  was  agreed  upon  in  which  the  court  consented 
to  the  New  Haven's  continued  control  of  the  Boston  and 
Maine,  provided  it  was  accomplished  through  a  Massachu- 
setts holding  company.  In  complying  with  the  decree  the 
New  Haven  organized  the  Boston  Railroad  Holding  Com- 
pany which  took  over  a  majority  of  the  Boston  and  Maine 
stock.  The  New  Haven  also  agreed  to  improve  its  service 
and  abstain  from  political  activities. 

The  Federal  Government  also  instituted  proceedings 
under  the  Sherman  law  against  the  New  Haven  in  1908, 
charging  the  company  with  monopolizing  the  steam  and  elec- 
tric railway  systems  of  New  England.  In  the  following  year 
the  proceedings  were  dismissed  after  a  formal  agreement  had 
been  entered  into  between  President  Roosevelt  and  the  New 
Haven  management.  In  this  agreement  the  latter  promised 
thereafter  to  be  a  "good"  monopoly.53 

The  absolute  failure  of  the  New  Haven  to  fulfill  the  above 
promises  has  already  been  shown.  In  1914,  the  Government 
began  dissolution  proceedings.  Because  of  its  financial  cir- 
cumstances the  company  feared  a  long  and  expensive  suit 
that  would  likely  have  resulted  in  putting  the  company  in 
the  hands  of  a  receiver.  Upon  securing  a  formal  agreement 
to  dissolve  'the  New  Haven  system  into  its  component  parts, 
the  Government  withdrew  its  suit. 

The  dissolution  plan  was  officially  summarized  as  fol- 
lows:54 

"First.     The  Boston  Railroad  Holding  Company  is  a 

raRipley,  Railroads,  Finance  and  Organization,  pp.  571-2. 
68  Ibid.,  pp.  571-2. 
«*  Ibid.,  p.  572. 


Decisions  Since  1911  193 

Massachusetts  corporation  holding  a  majority  of  the  stock 
of  the  Boston  and  Maine  Railroad,  and  90  percent  of  the 
former's  stock  in  turn  is  owned  by  the  New  Haven. 
*  *  *  the  stock  of  the  holding  company  will  be  transferred 
at  once  to  five  trustees,  and,  after  arrangements  have  been 
made  to  protect  the  minority  stock  of  the  holding  company, 
they  shall  sell  the  Boston  and  Maine  stock  prior  to  January 
1,  1917. 

Second.  The  stock  of  the  companies  which  control  the 
Connecticut  and  Rhode  Island  Trolleys  will  be  placed  in  the 
hands  of  trustees — five  for  each  state — and  shall  be  sold 
within  five  years  from  July  1,  1914. 

Third.  The  majority  stock  of  the  Merchants  and  Min- 
ers Transportation  Company,  now  held  by  the  New  Haven, 
will  be  placed  in  the  hands  of  three  trustees  and  shall  be  sold 
within  three  years  from  July  1,  1914. 

Fourth.  The  minority  stock  in  the  Eastern  Steamship 
Corporation,  held  by  the  New  Haven,  shall  be  sold  within 
three  years  from  July  1,  1914,  and  in  the  meanwhile  shall  be 
deprived  of  voting  power. 

Fifth.  Whether  the  New  Haven  railroad  shall  be  per- 
mitted to  retain  the  sound  lines  will  be  submitted  to  the 
Interstate  Commerce  Commission  for  determination  under 
the  provisions  of  the  Panama  Canal  Act. 

Sixth.  The  Berkshire  trolleys  shall  be  sold  within  five 
years  from  July  1,  1914."  55 

The  book  value  of  the  various  investments  of  the  New 
Haven  system  involved  in  this  dissolution  operation  amount- 
ed to  $133,815,082.  The  dissolution  after  providing  for  the 
separation  of  the  two  territorial  monopolies — the  Boston 
and  Maine  and  the  New  Haven — further  divests  the  two  com- 
panies of  the  control  of  the  trolley  and  electric  railways, 
which  represented  a  very  large  part  of  the  New  Haven 
securities.  The  dissolution  also  provides  for  the  weakening 
if  not  the  breaking  of  the  New  Haven's  control  of  water 
transportation  in  New  England.  The  fate  of  the  Long  Is- 
land Sound  lines  was  left  to  the  decision  of  the  Interstate 
Commerce  Commission. 

Soon  after  the  above  decree  was  entered,  the  Government 
MRipley,  Railroads,  Finance  and  Organization,  p.  572. 


194  Trust  Dissolution 

instituted  a  criminal  suit  against  Mr.  Rockefeller  and  twenty 
others,  each  at  some  time  a  director  or  officer,  or  both,  of 
the  New  Haven  company,  charging  them  with  conspiring 
to  monopolize  the  transportation  facilities  of  New  England. 
A  three  months'  trial  in  1916  of  eleven  of  the  principal  de- 
fendants resulted  in  the  acquittal  of  six  and  a  disagreement 
as  to  the  other  five. 

THE  NATIONAL  CASH  REGISTER   COMPANY 

^The  National  Cash  Register  Company  has  excelled  all 
American  trusts,  with  the  possible  exception  of  the  Standard 
Oil,  in  the  use  of  unfair  methods  of  suppressing  competition. 
It  was  chiefly  due  to  the  vigorous  employment  of  such  meth- 
ods that  the  company  early  obtained  almost  complete  con- 
trol of  the  cash  register  business  of  the  country.  } 

The  National  Cash  Register  Company  was  organized  in 
Ohio  in  1882  and  was  reorganized  as  a  New  Jersey  company 
in  1899.  The  present  company  under  the  same  name  was 
organized  in  1906  by  the  Paterson  interests  which  con- 
trolled the  former  organizations.  The  usefulness  of  cash 
registers  as  record-keeping  and  cash  receptacle  devices  gave 
rise  to  such  an  increased  demand  for  the  machines  that  many 
other  concerns  came  into  existence  for  their  manufacture 
and  sale.  However,  the  National  Cash  Register  Company" 
was  determined  to  permit  no  competition  to  exist  for  any 
length  of  time.  Its  intention  to  monopolize  the  cash  regis- 
ter business  was  freely  published  in  the  literature  sent  by 
the  company  to  its  agents.  From  time  to  time  meetings  of 
its  officers  and  agents  were  held  to  discuss  plans  for  the 
elimination  of  all  competition.  To  accomplish  this  purpose 
a  special  department  was  created,  which  was  designated  as 
the  "Competition  Department"  or  the  "Ways  and  Means" 
department.  It  was  aided  by  the  information  obtained  from 
hired  agents  who  resorted  to  bribery  and  other  practices  par- 
alleling those  of  the  Standard  Oil  to  accomplish  their  pur- 
pose. Among  the  various  methods  of  suppressing  competi- 
tion employed  by  the  company  were:  the  use  of  "knock  out" 
men  whose  business  it  was  to  interfere  with  the  sales  made  by 


Decisions  Since  1911  195 

competitors  and  to  make  threats,  intimidations  and  assaults, 
if  necessary,  to  prevent  such  sales ;  persistent  and  nation- 
wide espionage  upon  the  business  of  competitors ;  buying 
over  the  salesmen  of  competing  firms ;  circulating  among  its 
agents  a  black  list  containing  the  names  and  latest  informa- 
tion gathered  concerning  competitors ;  selling  cash  regis- 
ters known  as  "knockers,"  which  closely  resembled  those  of 
competitors,  at  ruinous  prices  until  the  competitors  were 
eliminated ;  instituting  costly  suits  whose  only  intent  was  to 
delay,  wear  out,  and  discredit  competitors ;  bringing  actions 
for  alleged  infringements  of  patents ;  intimidating  purchasers 
of  competitors'  goods  and  inducing  them  to  break  their  con- 
tracts and  to  refuse  payment  of  sums  owed  such  competitors, 
the  National  agreeing  to  assist  such  purchasers  if  suits 
were  brought  against  them;  misrepresenting  competitors' 
registers  and  even  destroying  their  mechanism  in  order  to 
make  purchasers  dissatisfied  with  them;  defaming  and  ruin- 
ing the  credit  of  competing  companies ;  and  the  common 
practice  of  operating  many  bogus  or  secretly  owned  com- 
panies which  posed  as  independents  in  order  to  secure  the 
patronage  of  those  hostile  to  the  trust  and  to  obtain  inside 
information  relating  to  competitors.56 

The  foregoing  list  is  not  complete.  The  federal  grand 
jury  declared  that  the  unfair,  oppressive,  and  illegal  means 
used  by  the  company  were  so  numerous  in  kind  and  so  shift- 
ing in  character  as  to  make  description  impossible.  Only  a 
few  of  these  predatory  practices  call  for  further  comment. 
The  sale  of  specially  made  registers  at  ruinous  prices  was 
effective  in  destroying  competitors.  Whenever  a  new  com- 
pany entered  the  field,  registers  similar  to  those  made  by  the 
new  company  were  sold  at  low  prices  by  the  National  until 
the  new  company  was  eliminated.  Cash  registers,  purchased 
from  competitors  or  secured  by  forcing  them  but  of  business, 
were  advertised  and  sold  below  cost  of  production,  thus  in- 
timidating both  dealers  and  manufacturers  through  danger 
of  financial  loss.  The  effectiveness  of  bogus  independent 
companies  has  frequently  been  mentioned.  Such  companies, 

50  55  Fed.  Rep.  605-6;  201  Fed.  Rep.  701-4;  Stevens,  Quart.  Jour,  of 
Econ.,  V.  26,  pp.  625-630. 


196  Trust  Dissolution 

pretending  to  compete  with  the  National,  were  common  and 
were  used  to  wage  local  price  cutting  wars  against  competi- 
tors or  to  secure  trade  secrets  and  inside  information  con- 
cerning them.  Two  other  methods  of  intimidation  may  be 
described.  In  the  factory  at  Dayton,  Ohio,  the  National 
maintained  a  display  room  known  as  the  "Grave  Yard"  or 
"Midway"  in  which  the  company  exhibited  the  registers  of 
vanquished  competitors.  Display  cards  gave  the  name  of 
the  company  which  made  the  register,  the  date  of  its  disso- 
lution, the  amount  of  money  lost,  etc.  Manufacturers,  mer- 
chants, and  other  visitors  were  shown  through  the  "Grave 
Yard."  Another  device  was  the  publication  and  distribution 
of  lists  purporting  to  give  the  names  of  concerns  eliminated 
from  the  cash  register  business.  One  list,  issued  in  January 
1910,  contained  the  following  statement:  "Within  the  past 
fifteen  years,  158  cash  register  companies  have  been  organ- 
ized to  compete  with  the  National  Cash  Register  Company. 
Of  these,  153  have  failed  in  business.  Their  combined  capi- 
tal was  $5,735,000.  Their  combined  loss  was  $1,970,000. 
According  to  the  sworn  affidavit  of  its  officers,  the  Boston 
Cash  Register  Company  alone  lost  $192,750.08.  Of  every 
20  cash  registers  sold,  19  are  Nationals."  57 

It  was  largely  through  the  practice  of  unfair  methods 
that  the  National  Cash  Register  Company  was  able  to  domi- 
nate the  business  so  completely.  The  percentage  of  the  total 
business  controlled  by  the  National  Cash  Register  Company 
which  was  about  82  in  the  early  nineties  was  later  increased 
to  95. 58  Such  complete  and  increasing  control  in  a  large 
and  growing  business,  which  required  small  capital  to  enter, 
is  evidence  of  the  effectiveness  of  the  National's  methods  of 
restricting  competition. 

In  1893  a  criminal  suit  under  the  Sherman  law  was 
brought  against  John  H.  Patterson  and  others  of  the  Na- 
tional Cash  Register  Company,  charging  them  with  enter- 
ing into  a  combination  for  the  purpose  of  controlling  the 
price  of  cash  registers.  The  indictments  contained  counts 

w  Stevens,   Quart.   Jour,   of  Econ.,  V.  26,  p.   629. 
68  201  Fed.  Rep.  Wl,  _ 

v^  v 


Decisions  Since  1911  197 

against  nearly  all  the  methods  described  above.59  The  prose- 
cution of  the  case  was  allowed  to  lapse  because  the  complain- 
ing witness  entered  into  the  combination  of  the  defendants. 

It  was  nearly  two  decades  before  other  action  was 
brought  against  the  company.  In  the  meanwhile,  it  con- 
tinued the  unfair  and  predatory  practices  and  was  able  to 
derive  large  earnings  from  its  control  of  95  percent  of  the 
entire  cash  register  business.  In  1912  a  second  criminal  *\* 
suit  was  brought  against  President  Patterson  and  twenty- 
nine  others  of  the  National  Cash  Register  Company,  charg- 
ing a  conspiracy  in  restraint  of  trade  and  commerce  which 
resulted  in  an  unlawful  monopoly  of  the  industry.  The  evi- 
dence showed  the  use  of  nearly  every  method  of  suppressing 
competition  enumerated  above.60  The  trial  resulted  in  a 
verdict  of  guilty  against  twenty-nine  of  the  thirty  defend- 
ants and  fines  aggregating  $135,000  and  jail  sentences  rang- 
ing from  nine  months  to  one  year  were  imposed.61  Mr.  Pat- 
terson was  sentenced  to  serve  one  year  in  jail  and  pay  a 
fine  of  $5,000.  The  defendants  appealed  to  the  Circuit 
Court  of  Appeals.  This  court,  after  a  lengthy  review  of  the 
case,  reversed  the  judgment  of  the  lower  court  on  rather 
technical  grounds  and  remanded  the  case  back  for  retrial. 
The  Government  applied  to  the  Supreme  Court  for  a  review 
but  this  was  denied.62  The  retrial  was  not  pushed,  and  early 
in  1916  the  criminal  proceedings  were  dropped  when  a  de- 
cree, described  below  was  entered  in  a  civil  case  against  sub- 
stantially the  same  defendants. 

The  civil  case  against  the  National  Cash  Register  Com- 
pany and  others  was  filed  about  six  weeks  before  the  filing  of 
the  above  mentioned  criminal  suit.63  Both  of  these  actions 
under  the  Sherman  law  were  against  substantially  the  same 
defendants  and  contained  similar  charges  of  restraint  and 
monopolization  in  the  cash  register  business.  A  consent 
decree  was  entered  in  the  Circuit  Court  by  the  attorneys  for 

59  55  Fed.  Rep.  805-6. 

60  201  Fed.  Rep.  701-4. 

"The  Federal  Antitrust  Laws,  Washington,  1916,  pp.  73-4. 

82  238  U.  S.  635. 

63  The  Federal  Antitrust  Laws,  Washington,  1916,  p.  70. 


198  Trust  Dissolution 

the  defendant  and  the  Government  in  February,  1916.64  By 
the  terms  of  the  decree  the  Government  secured  practically 
every  change  asked  for  in  its  civil  suit  against  the  company. 
It  was  established  that  the  defendants  had  combined  to 
restrain  and  to  monopolize  the  cash  register  trade  in  viola- 
tion of  the  Sherman  law,  by  one  or  the  other  of  the  means 
which  the  decree  enjoined. 

The  restraining  provisions  covered  over  seven  pages  of 
the  decree  and  included  the  following  acts :  65  ( 1 )  inducing 
a  purchaser  of  a  competitor's  cash  register  to  break  his  sale 
or  agreement  with  such  competitor;  (&)  espionage  for  the 
purpose  of  obtaining  information  concerning  a  competitor's 
purchasers  or  business;  (3)  illegally  securing  a  competitor's 
business  secrets;  (4)  buying  up  or  inducing  agents  of  com- 
petitors to  leave  their  employers;  (5)  using  any  informa- 
tion obtained  from  an  employee  of  a  competitor  relating  to 
trade  secrets  or  business  confidences  of  his  employer;  (6) 
manufacturing  or  offering  to  sell  any  cash  register  resem- 
bling a  competitor's  register  for  the  purpose  of  preventing 
sales  of  such  competing  machines,  or  selling  any  registers 
without  regard  to  its  cost  of  manufacture  with  intent  to 
drive  out  competitors;  (7)  disposing  of  any  cash  register 
of  a  competitor,  no  matter  how  obtained,  for  the  purpose  of 
preventing  sales  by  such  competitor  or  for  any  other  pur- 
pose mentioned;  (8)  disposing  of  second-hand  registers  for 
the  special  purpose  of  underselling  a  competitor  and  driving 
him  from  business;  (9)  employing  any  person  whether 
known  as  a  "special  man"  or  "competition  man,"  whose 
principal  business  is  to  prevent  sales  of  cash  registers  of  a 
competitor,  or  his  agent,  or  dealer;  (10)  following  from 
place  to  place  competitors  or  their  agents  for  the  purpose 
of  hindering  their  attempts  to  sell  or  to  ascertain  the  names 
of  persons,  places  of  business,  and  dealers  they  may  call 
upon;  (11)  circulating  any  statement  reflecting  upon  the 
solvency  or  responsibility  of  a  competitor,  or  upon  the  effi- 
ciency of  a  competing  register  when  such  statement  is  a  mis- 
representation or  is  made  for  the  purpose  of  preventing  the 

"Final  Decree,  Washington,  1916. 
«Ibid.,  pp.  3-10. 


Decisions  Since  1911  199 


sale  of  competing  registers,  or  of  driving  such  competitors 
from  business;  (12)  publishing  any  circular  or  letter  with 
the  purpose  of  recommending  or  suggesting  to  agents  any 
act  or  means  of  accomplishing  any  act  which  is  forbidden 
in  the  decree;  (13)  intimidating  any  competitor  or  would-be 
competitor  by  displaying  models  of  competing  registers 
along  with  registers  made  in  imitation  of  them,  or  by  dis- 
playing quantities  of  second-hand  registers  of  competitors, 
or  by  displaying  statements  or  placards  purposing  to  show 
the  names  of  ruined  competitors  and  the  amounts  lost  by 
them  in  attempting  to  compete  with  the  National,  or  by 
intimidating  investors  in  the  stocks  and  securities  of  com- 
peting companies  formed  or  to  be  formed;  (14)  maintain- 
ing bogus  or  secretly  owned  companies  posing  as  independ- 
ent competitors;  (15)  intimidating  competitors  or  purchas- 
ers by  threats  of  patent  infringement  suits;  (16)  acquiring 
control  or  ownership  of  the  business,  patents  or  plants  of 
competitors  without  the  consent  of  the  court  and  the  ap- 
proval of  the  Attorney  General. 

By  the  terms  of  the  decree  the  court  retained  jurisdic- 
tion of  the  case  for  the  purpose  of  enforcing  the  injunction 
and  enabling  the  parties  to  apply  to  the  court  for  modifica- 
tions of  the  decree  should  changed  conditions  or  changes  of 
law  make  the  decree  unnecessarily  oppressive  to  the  defend- 
ants, or  inadequate  to  maintain  competitive  conditions  in 
the  industry.  The  defendants  were  assessed  with  the  costs 
which  amounted  to  about  $40,000.  With  the  filing  of  the 
decree  the  Government  announced  that  no  further  proceed- 
ings would  be  taken  against  the  directors  and  officers  of  the 
company.  If  there  be  any  persons  who  deserve  criminal 
punishment  under  the  provisions  of  the  Sherman  law,  it 
would  appear  that  some  of  the  defendants,  who  for  over 
thirty  years  had  used  the  most  unfair,  oppressive,  and  il- 
legal means  of  maintaining  a  monopoly,  should  not  have  been 
allowed  to  escape  so  easily.  Undoubtedly  the  generosity 
shown  by  President  Patterson  and  his  associates  during  the 
Dayton  flood  disaster,  which  occurred  soon  after  their  con- 
viction, helped  to  weaken  the  popular  demand  for  their 
punishment. 


200  Trust  Dissolution 

The  injunction  entered  against  the  defendants  appears 
very  sweeping  and  covers  the  chief  means  of  suppressing 
competition  employed  by  them.  However,  many  of  the  pro- 
hibitions will  be  difficult  to  enforce,  especially  since  the  de- 
fendants are  experienced  in  methods  of  violating  the  law 
and  have  established  habitual  fear  on  the  part  of  competi- 
tors. Perhaps  the  most  important  and  the  most  promising 
of  the  restraining  provisions  is  the  one  forbidding  the  de- 
fendants to  acquire  control  or  ownership  in  the  business  or 
patents  of  a  competitor  without  the  consent  of  the  court. 
The  retention  of  jurisdiction  over  the  case  for  the  purpose 
of  enforcing  the  decree  and  maintaining  competitive  con- 
ditions, though  uncommon,  is  not  new.  In  some  of  the  earlier 
dissolutions  the  independent  interests  asked  the  court  to  re- 
tain jurisdiction  of  the  case  so  that  they  might  subsequently 
apply  for  relief  if  necessary,  but  the  request  was  usually  de- 
nied. 

The  most  serious  defect  of  the  decree  was  that  it  left  a 
monopoly  control  of  about  95  percent  of  the  business  in  the 
hands  of  the  company  which  had  built  it  up  by  illegal  meth- 
ods and  secured  large  profits  from  it  for  about  thirty  years. 
Such  a  degree  of  control  gives  power  in  itself  which  can  be 
used  without  any  apparent  violation  of  the  law.  Since  the 
capital  required  for  entrance  into  the  business  was  not 
large,  there  could  have  been  some  equitable  division  of  the 
business  without  serious  loss  in  productive  efficiency.  Even 
if  the  restraining  features  of  the  decree  be  successfully  en- 
forced, the  company  will  for  many  years  have  the  advan- 
tages, illegally  secured  for  the  most  part,  which  arise  from 
control  of  a  large  proportion  of  the  business,  patents,  sell- 
ing agencies,  and  established  trade  connections  throughout 
the  country.  However,  if  unfair  methods  are  prevented  there 
is  hope  that  existing  competitors  may  rapidly  expand  their 
business.  But  the  conclusion  is  inevitable  that  the  defend- 
ants got  off  easily.  By  the  terms  of  the  decree  all  prosecu- 
tion against  them  was  dropped.  They  lost  no  gains  or  ad- 
vantages illegally  secured  during  the  past  three  decades. 
The  promise  of  the  defendants  to  be  good  in  the  future  while 
the  court  retained  jurisdiction  of  the  case  is  an  interesting 


Decisions  Since  1911  201 

experiment  with  some  of  the  most  persistent  violators  of  the 
trust  laws.  It  may  be  noted  that  in  the  fixing  of  the  decree 
the  court  did  not  call  upon  the  assistance  of  the  Federal 
Trade  Commission. 

THE   BURROUGHS  ADDING   MACHINE   COMPANY 

The  Burroughs  Adding  Machine  Company  practiced 
many  of  the  methods  of  unfair  competition  followed  by  the 
National  Cash  Register  Company  in  its  efforts  to  monopolize 
the  trade  in  adding  and  listing  machines.  The  profits  of  the 
company  have  been  very  large.  Although  a  900  percent 
stock  dividend  was  declared  in  1906  the  cash  dividends  rose 
rapidly  from  7  percent  in  that  year  to  16  percent  in 
1913. 66  In  1913,  the  Government  filed  a  petition  against 
the  company  and  others,  charging  a  conspiracy  to  monopo- 
lize trade  and  commerce  in  adding  and  listing  machines.  A 
consent  decree  was  immediately  entered,  enjoining  the  de- 
fendants from  doing  the  various  acts  complained  of,  in- 
cluding misrepresentation  of  competitors  and  their  machines 
by  act  or  word,  espionage  through  corruption  or  bribery  of 
employees,  and  inducing  breach  of  competitors'  contracts. 

Since  the  decree  was  entered  in  1913,  dividends  of  16 
percent  have  been  paid  by  the  company  and  in  1916  an- 
other stock  dividend  of  200  percent  was  declared.  This  case 
furnishes  additional  evidence  that  control  and  profits  once 
established  by  unfair  methods  may  be  maintained  even  though 
the  illegal  practices  are  later  abandoned,  and  therefore  a 
dissolution  decree  which  merely  prevents  the  repetition  of 
the  criminal  tactics  and  leaves  the  guilty  persons  in  posses- 
sion of  the  spoils  hardly  meets  the  demands  of  justice. 

THE  ALUMINUM  COMPANY  OF  AMERICA 

Aluminum  is  a  metal  that  has  many  valuable  properties 

and  the  invention  of  cheaper  processes  of  production  within 

comparatively  recent  years  has  given  it  an  important  place 

in  modern  industry.    It  is  widely  used  in  metallurgy  and  for 

"Moody's  Manual,  1916. 


202  Trmt  Dissolution 

the  manufacture  of  cooking  utensils,  castings  in  automobiles, 
engines,  airships  and  aerial  crafts,  submarines  and  boats, 
wire  cables  and  transmission  wires,  foil  for  candy  and  to- 
bacco. Bauxite  is  the  chief  aluminum  ore  and  this  is  pro- 
duced mainly  by  the  United  States  and  France.  Cheap 
power  is  essential  to  its  reduction  on  a  commercial  scale.  In 
1886,  only  1.5  tons  were  produced;  in  1891,  75  tons;  in 
1901,  3575  tons;  in  1911,  23,062  tons.  The  price  declined 
from  $90  per  pound  in  1855  to  $12  in  1870;  $2  in  1890;  33 
cents  in  1904,  and  in  1910-11  it  ranged  from  19  to  24 
cents.67 

The  Aluminum  Company  of  America  was  organized  in 
1888  as  the  Pittsburg  Reduction  Company,  with  a  plant 
near  that  city.68  It  used  Hall's  process  of  electrolysis  which 
greatly  reduced  the  cost  of  production.  Later,  the  com- 
pany utilized  the  water  power  at  Niagara  Falls,  and  built  or 
acquired  other  water  power  plants  in  this  country  and  Can- 
ada. It  also  obtained  a  very  complete  control  of  bauxite 
ore,  the  raw  material,  by  means  of  which  it  dominated  the 
production  of  aluminum,  as  well  as  its  manufactured  prod- 
ucts. Various  unfair  methods  were  used  by  the  company  to 
secure  and  maintain  its  control.  Many  of  these  are  de- 
scribed in  the  decree  of  the  court,  which  is  given  below.  In 
1906,  control  was  acquired  over  four  other  companies,  the 
largest  being  the  St.  Laurence  River  Power  Company  which 
had  outstanding  $3,500,000  of  common  stock  and  $3,000,- 
000  of  cumulative  preferred  stock.69  In  1907,  the  name  of 
the  company  was  changed  to  the  present  title  and  in  1911  it 
was  the  only  producer  of  aluminum  in  the  country.70  Enor- 
mous profits  were  obtained  by  the  company.  The  old  capital 
stock  was  $1,000,000,  and  its  assets  had  increased  by  1915 
to  $27,000,000,  on  which  it  earned  17  percent.  In  1909 
a  stock  dividend  of  500  percent  was  declared.  The  out- 
standing stock  was  $19,000,000  in  1916. 

Late  in  1912,  the  Government  filed  a  petition  against 
the  Aluminum  Company  of  America  to  prevent  a  further  mo- 

67  International   Encyclopedia. 

""Moody's  Manual,  1916,  p.  2029? 

89  Ibid.,  p.  2029. 

70  New  International  Encyclopedia. 


Decisions  Since  1911  203 


nopoly  of  and  restraint  upon  the  trade  and  commerce  in 
aluminum  and  aluminum  wares.  It  charged  that  the  com- 
pany owned  from  80  to  90  percent  of  the  raw  material  in 
this  country  and  controlled  by  contract  the  disposition  of 
the  remainder;  that  it  prevented  through  contracts  with 
foreign  companies  the  importation  of  raw  material ;  and 
that  the  company,  through  its  subsidiaries,  controlled  from 
50  to  70  percent  of  the  manufacture  of  the  finished  prod- 
ucts.71 A  consent  decree  was  entered  within  a  few  weeks 
which  enjoined  the  company  as  follows:  72 

1.  Delaying  shipments   of  raw   material   to   any  manu- 
facturer competing  with  its  own  subsidiaries  in  the  manu- 
facture and  sale   of  finished  products,   without   reasonable 
notice  and  cause. 

2.  Refusing  to  ship  or  to   continue  shipments  of  such 
material  to  a   competing  manufacturer  upon  contracts   or 
orders,  and  particularly  on  partially-filled  orders. 

3.  Delaying  bills  of  lading  on  such  shipments. 

4.  Furnishing  known  defective  material  to  such  competi- 
tors. 

5.  Charging  higher  prices  for  crude  or  semi-finished  prod- 
ucts to  manufacturers  competing  with  its  subsidiaries  than 
it  charged  under  like  conditions  to  such  subsidiaries. 

6.  Refusing  to   sell   crude   or  semi-finished  products   to 
prospective  competitors  on  like  terms  and  conditions  of  sale 
as  it  sold  to  its  subsidiaries. 

7.  From  demanding,  as  a  condition  precedent  to  selling 
such  material  to  a  competitor,  that  it  should  divulge  the 
terms  which  the  competitor  would  make  to  secure  the  work 
in  connection  with  which  the  material  would  be  used  and 
from  giving  this  information  to  its  subsidiaries  or  others. 

8.  Requiring  competitors  not  to  compete  in  certain  lines 
with  the  company  or  its  subsidiaries  as  a  condition  of  se- 
curing material. 

9.  Representing  that  unless  companies  dealt  with  it  or 
its  subsidiaries  they  would  be  unable  to  secure  a  sufficient 
supply  of  the  material,  or  at  a  price  that  would  enable  them 

"Trust  Laws  and  Unfair  Competition,  p.  493. 
"Ibid.,  p.  4&3. 


204  Trust  Dissolution 

to  compete  with  it;  or  that  their  supply  would  be  cut  off 
entirely. 

10.  Preventing  the  expansion  of  the  business  of  other 
manufacturers  by  threatening  to  cut  off  their  supply  of  raw 
material  if  they  attempted  to  enlarge  their  business. 

11.  Raising  the  price  of  crude  or  semi-finished  products 
to  its  subsidiaries  in  order  to  raise  it  to  competing  manu- 
facturers.73 

In  spite  of  this  injunction  the  strength  of  the  com- 
pany has  greatly  increased.  The  increased  demand  for 
aluminum  on  account  of  the  European)  war  more  than 
trebled  the  prices  of  aluminum.  Indirectly  the  war  also 
brought  about  the  acquisition  of  the  Southern  Aluminum 
Company  which  had  outstanding  $2,400,000  of  common  and 
$6,000,000  of  7  percent  preferred  stock.  This  company, 
which  was  controlled  by  French  capitalists,  had  begun  in 
1913  the  construction  of  an-  immense  hydro-electric  and 
aluminum  manufacturing  plant  at  Whitney,  North  Caro- 
lina. In  1914,  when  the  plants  were  three-fourths  completed, 
building  operations  ceased  because  of  the  lack  of  capital, 
and  in  the  following  year  the  Aluminum  Company  of  Amer- 
ica acquired  the  property  and  completed  the  plants. 

THE  NEW  DEPARTURE  MANUFACTURING  COMPANY 

In  1907  a  combination  was  formed  among  the  manufac- 
turers of  bicycle  and  motor-cycle  brakes  and  accessories, 
which  in  several  respects  resembled  the  "Bath  Tub  Pool." 
The  formal  organization  was  the  "Association  of  Coaster 
Brake  Licenses,"  consisting  of  the  New  Departure  Manufac- 
turing Company,  five  other  corporations,  and  eighteen  indi- 
viduals.74 The  members  of  the  association  produced  85 
percent  of  the  output  of  bicycle  and  motor-cycle  coaster 
brakes  and  accessories,  and  were  able  to  control  the  price 
of  such  products.75 

Various  means  were  used  by  the  association  to  make  its 
price  control  effective.  Among  these  may  be  mentioned :  76 

"Trust  Laws  and  Unfair  Competition,  p.  493. 

"204  Fed.  Rep.  107  et  seq. 

75  Ibid.,  p.  109. 

78  Ibid.,  pp.   109-10. 


Decisions  Since  1911  205 

(1)  the  maintenance  of  fixed  prices  for  the  products;  (2) 
establishing  uniform  and  non-competitive  discounts  to  manu- 
facturers, dealers  and  jobbers;  (3)  selling  all  products  only 
upon  terms  and  conditions  jointly  agreed  upon  and  using 
a  uniform  contract  with  all  prospective  buyers;  (4)  restrict- 
ing ihe  sale  of  products  to  manufacturers  who  dealt  exclu- 
sively with  the  association  members  in  the  lines  of  products 
made  by  them;  (5)  instituting  infringement  suits  and  other 
legal  processes  against  competitors;  (6)  fixing  resale  prices 
and  discounts  to  jobbers;  (7)  devising  a  basic  license  agree- 
ment to  bind  the  association  members.  Under  the  terms  of 
the  agreement  the  New  Departure  Manufacturing  Company 
obtained  control  of  all  the  patents  held  by  the  com- 
bination. The  company  acting  as  licensor  made  uniform 
agreements  covering  the  use  of  these  patents  with  the  re- 
maining companies.  The  royalties  were  largely  discounted 
to  all  who  faithfully  observed  the  combination  agreements. 
The  license  agreements  were  made  to  cover  the  manufacture 
and  sale  of  parts  not  covered  by  the  patents  and  each  licensee 
was  required  to  observe  the  sale  prices  and  restrictions  on 
sales  to  jobbers,  retail  dealers  and  customers,  and  also  to 
deposit  a  guaranty  fund  to  insure  a  faithful  observance  of 
the  agreement. 

In  1912,  the  Government  secured  an  indictment  against 
the  members  of  the  association  charging  unlawful  combina- 
tion and  conspiracy  with  intent  to  monopolize  and  maintain 
prices  in  the  coaster  brake  business.  The  defendants  en- 
tered pleas  of  guilty  and  fines  aggregating  $81,500  were 
imposed  in  1913.77 

In  1912  the  Government  also  filed  a  dissolution  suit 
against  the  defendants  in  the  preceding  suit  on  the  charge 
of  entering  into  a  conspiracy,  combination  and  license  agree- 
ment for  the  purpose  of  restraining  and  monopolizing  the 
sale  and  manufacture  of  bicycle  and  motor-cycle  parts  and 
coaster  brakes.  Rather  than  meet  the  expense  and  almost 
inevitable  result  of  a  suit  the  defendants  soon  agreed  to  a  r  fp» 
consent  decree  by  the  terms  of  which  the  combination  was 
held  to  be  illegal  and  the  defendants  were  enjoined  from 
continuing  the  conspiracy  or  participating  in  any  manner  in 

"The  Federal  Antitrust  Laws,  Washington,  1916,  p.  72. 


206  Trust  Dissolution 

any  similar  organization;  and  from  soliciting,  arranging  or 
confirming  by  mutual  agreement  or  understanding  any  lists 
of  manufacturers,  or  jobbers,  or  dealers  with  whom  trade 
should  or  should  not  be  carried  on.78 

THE  NEW  YORK  COTTON   SPECULATORS'  POOL 

The  legality  under  the  Sherman  law  of  establishing  a 
"corner"  was  decided  by  the  Supreme  Court  in  1913.79  The 
decision  was  given  in  a  suit  brought  by  the  Government 
against  James  A.  Patten  and  other  cotton  speculators  who 
were  charged  with  entering  into  an  agreement  to  enhance 
abnormally  the  price  of  cotton  by  obtaining  a  corner  on 
this  commodity.  The  price  of  cotton  is  practically  deter- 
mined by  transactions  on  the  New  York  Cotton  Exchange. 
The  defendants  in  the  suit  secured  a  corner  on  cotton  by 
purchasing  on  the  exchange  large  quantities  for  future  de- 
livery, quantities  far  in  excess  of  the  amount  available,  and 
by  withholding  sales  for  a  time  they  compelled  the  cotton 
manufacturers  of  the  entire  country  to  pay  excessive  prices 
for  their  raw  material. 

The  Supreme  Court  held  that  the  acts  of  the  defendants 
impeded  interstate  commerce  and  came  within  the  prohibi- 
tions of  the  antitrust  laws.80  While  maintaining  a  corner 
might  temporarily  stimulate  competition,  the  court  decided 
that  it  thwarted  the  customary  operation  of  the  law  of 
supply  and  demand  and  produced  the  same  evils  as  the  sup- 
pression of  competition. 

Mr.  Patten  plead  guilty  to  the  charge  and  was  fined 
$1,000.  The  indictment  was  dismissed  as  to  the  other  de- 
fendants, but  a  new  indictment  was  soon  returned  against 
them,  and  later  in  the  same  year  fines  aggregating  $18,000 
were  imposed.81  The  amount  of  the  fines  is  insignificant  in 
comparison  with  the  profits  usually  obtained  from  a  success- 
ful corner  on  a  staple  commodity  and  the  penalty  imposed 
will  not  act  as  a  strong  deterrent  to  securing  other  corners. 

78  Trust  Laws  and  Unfair  Competition,  1915,  pp.  491,  716,  729. 

79  226  U.  S.  525. 

80  226  U.  S.  541-3. 

81  The  Federal  Antitrust  Laws,  Washington,  1916,  pp.  82-3. 


CHAPTER  VII 

IMPORTANT  CASES  AWAITING  SUPREME  COURT  DECISIONS 

WHILE  some  of  the  cases  discussed  in  previous  pages 
are  still  pending  before  the  courts  as  to  certain  fea- 
tures, there  are  other  important  cases  pending  whose  main 
issues  are  now  before  the  Supreme  Court  and  whose  final  de- 
cisions will  go  far  toward  interpreting  the  prohibitions  of 
the  trust  laws.  The  best  known  of  these  are  the  Interna- 
tional Harvester  Company  and  the  United  States  Steel  Cor- 
poration cases.  Each  of  these  companies  is  the  leader  in 
its  respective  industry,  but  in  each  case  the  degree  of  con- 
trol is  noteworthy  in  only  a  few  of  the  many  branches  of  the 
industry.  Both  have  been  characterized  as  "good  trusts." 
Other  important  cases  pending  before  the  Supreme  Court 
which  will  be  considered  are  the  Great  Lakes  Towing  Com- 
pany, Eastman  Kodak  Company,  Motion  Picture  Patents 
Company,  Keystone  Watch  Case  Company,  Corn  Products 
Refining  Company,  Quaker  Oats  Company,  and  American 
Can  Company.  Early  in  January  1918,  the  Government 
secured  permission  from  the  Supreme  Court  to  defer  the 
argument  on  these  large  anti-trust  suits  pending  until  the 
following  term  of  court.  This  action  was  taken  on  the 
ground  that  the  Government  might  secure  greater  co-opera- 
tion of  the  business  and  financial  interests  of  the  country  in 
meeting  the  war  needs  of  the  hour. 

THE  INTERNATIONAL,  HARVESTER  COMPANY  1 

The  United  States  has  long  led  the  world  in  the  produc- 
tion of  agricultural  implements,  and  since  1902  the  most  im- 
portant concern  in  the  industry  has  been  the  International 

1  Report  of  the  Bureau  of  Corporations  on  the  International  Har- 
vester Company,  1913.    This  report  forms  the  chief  source  for  the  fol- 

207 


208  Trust  Dissolution 

Harvester  Company.  In  that  year  the  company  was  organ- 
ized under  the  laws  of  New  Jersey  as  a  consolidation  of  the 
five  principal  manufacturers  of  harvesting  machines  in  the 
United  States,  namely,  the  McCormick  Harvesting  Machine, 
Deering  Harvester,  Piano  Manufacturing,  Warder  Bush- 
nell  and  Glessner  (makers  of  Champion  brands  and  here- 
after called  the  Champion  company)  and  the  Milwaukee 
Harvester  companies.  The  combining  companies  manufac- 
tured about  85  percent  of  the  total  output  of  harvesting 
machines.2  The  other  chief  producers  of  harvesting  ma- 
chines were  located  in  New  York,  far  removed  from  the  chief 
grain  producing  states,  and  their  market  was  chiefly  con- 
fined to  the  export  trade  and  to  the  North  Atlantic  States. 
Prior  to  1902,  the  harvesting  machine  industry  was  gen- 
erally subject  to  competitive  conditions,  and  this  was  par- 
ticularly true  of  the  decade  immediately  preceding  the  con- 
solidation.3 However,  the  claim  that  the  combination  was 
justified  because  the  combining  companies  were  suffering 
from  destructive  competition  is  not  supported  by  facts.  The 
volume  of  their  business  had  greatly  increased  and  the  rate 
of  profit  earned  upon  the  capital  invested  was  compara- 
tively high.  For  the  two  largest,  the  McCormick  and  Deer- 
ing  companies,  the  profits  were  especially  high  just  prior  to 
the  merger.4  The  primary  motive  for  consolidation  was  to 
eliminate  competition  and  thus  to  secure  a  dominant  posi- 
tion in  the  trade.5  Such  a  position  was  assured  from  the 
first  since  the  combining  companies  produced  or  sold  90 
percent  of  the  binders,  81  percent  of  the  mowers,  67  percent 
of  the  rakes,  and  probably  90  percent  of  the  reapers  and 
cornbinders.6  A  secondary  motive  for  consolidating  was  to 
lower  the  costs  of  production.  The  issue  of  inflated  securi- 
ties was  not  attempted  in  any  marked  degree.  The  absence 
of  this  motive  which  is  usually  present  in  such  cases  is  partly 

lowing  pages  and  will  be  referred  to  as  Report  of  Bureau.  Other 
sources  are  the  Brief  for  the  United  States  in  the  Supreme  Court; 
214  Fed.  Rep.  987-1012. 

2  Report  of  Bureau,  p.   69. 

8  Ibid.,  pp.   56-66. 

4  Ibid.,  p.  63. 

8 Ibid.,  pp.  69-70.  "Ibid.,  pp.  92-3. 


Import 


ant  Cases  Awaiting  Supreme  Court  Decisions     209 

explained  by  the  close  ownership  of  the  companies  merged 
and  partly  by  the  condition  of  the  stock-market  which  was 
already  depressed  by  the  issue  of  inflated  stocks. 

The  International  Harvester  Company  was  organized 
with  a  capitalization  of  $120,000,000,  all  common  stock.7 
Of  this  amount  $60,000,000  was  issued  as  the  purchase  price 
of  the  assets  of  the  five  companies,  including  the  promoter's 
fee.  The  valuation  of  the  assets,  exclusive  of  good  will,  by 
the  Bureau  and  the  amount  of  stock  issued  as  the  purchase 
price  of  each  company  were  as  follows :  8 


Company 

Valuation  as 
Estimated  by 
the  Bureau 

Stock  Issued 
for  Property 
and  Services 

Deering  

$16,856,704 

$21,314,554 

McCormick 

23,490,789 

26,262,514 

Piano  

2,378,119 

2,268,603 

Champion  ... 

3,391,742 

3,447,185 

Milwaukee 

3,000,000 

3,000,000 

Total $49,117,356    $56,292,857 

J.  P.  Morgan  &  Co.  (promoter's  fee)  2,957,142 

Expense  fund 749,999 

Total $49,117,356    $60,000,000 

The  remaining  $60,000,000  of  stock  was  sold  for  cash 
among  the  consolidating  interests  and  the  proceeds  were 
used  for  working  capital.  Of  the  total  capital  stock,  the 
McCormick  interests  received  42.6  percent  and  the  Deer- 
ing  34.4,  giving  a  77  percent  stock  control  to  these  two 
companies.9  A  voting  trust,  formed  as  part  of  the  consoli- 
dation agreement,  gave  the  McCormick,  Deering  and  Mor- 
gan interests  equal  voice  in  the  management  of  the  company, 
but  the  predominating  influence  appears  to  have  been  ex- 
erted by  the  Deering  interests.  The  voting  trust  was  main- 
tained for  ten  years.10  The  leaders  of  the  combining  com- 

7  Report  of  Bureau,  pp.  84-7. 

8  Ibid.,  p.  126. 
•Ibid.,  pp.  86-7. 
"214  Fed.   Rep.  991. 


210  Trust  Dissolution 

panies  became  the  officers  and  directors  of  the  International. 
From  the  time  of  organization  up  to  1913,  the  year  of 
the  Bureau's  report,  the  business  of  the  International  was 
greatly  extended  in  various  ways :  by  the  acquisition  of  both 
competing  companies  and  those  making  non-competing  prod- 
ucts ;  by  manufacturing  new  lines  at  old  plants ;  by  the  con- 
struction of  new  factories  at  home  and  abroad  for  making 
both  old  and  new  lines  of  machinery;  and  by  developing  the 
production  and  manufacture  of  its  raw  materials.  The  ex- 
tension of  manufacture  into  numerous  new  lines,  such  as  till- 
ing implements,  manure  spreaders,  farm  wagons,  gasoline 
engines,  tractors,  threshers,  and  cream  separators,  was 
directly  furthered  by  the  monopolistic  control  of  the  harv- 
esting machine  business.11  In  1902  the  International  secret- 
ly purchased  its  largest  competitor,  the  D.  M.  Osborne  Com- 
pany, for  ^3,365,000.  Control  of  the  Minnie  Harvester 
Company  was  secured  in  the  following  year.  In  1904  two 
other  competitors  in  the  manufacture  of  harvesting  ma- 
chines were  acquired,  the  Aultman-Miller  and  Keystone  com- 
panies. All  of  the  above  acquisitions  were  secretly  made  and 
for  various  periods  they  were  operated  nominally  as  inde- 
pendent companies.  There  was  commercial  advantage  in  ap- 
pearing not  to  be  associated  with  the  International  for  many 
people  were  opposed  to  buying  from  the  trust.  The  pur- 
chase of  the  Weber  Wagon  Company  in  1904  and  the  Bet- 
tendorf  Axle  Company  in  1905,  followed  by  a  large  increase 
in  their  output,  made  the  International  one  of  the  impor- 
tant manufacturers  of  farm  wagons.  The  manufacture  of 
manure  spreaders  was  entered  into  in  1906  through  the 
purchase  of  the  J.  S.  Kemp  Manufacturing  Company.  Later 
several  contracts  were  secured  for  the  marketing  of  plows 
and  seeding  machines  made  by  other  manufacturers. 

In  addition  to  new  lines  of  manufacture  acquired  by  pur- 
chase, others  were  developed  at  old  and  new  plants.  The 
harvesting  machine  business  of  the  Milwaukee  plant  was 
transferred  to  the  McCormick  factory  and  the  former  took 
up  the  manufacture  of  gasoline  engines  in  1904,  cream  sepa- 
rators in  1905  and  tractors  in  1906.  In  a  similar  manner 
"Report  of  Bureau,  p.  19. 


Important  Cases  Awaiting  Supreme  Court  Decisions 

the  Piano  factory  transferred  its  harvesting  machine  busi- 
ness to  the  Deering  plant  and  replaced  this  by  the  manufac- 
ture of  manure  spreaders  in  1905  and  of  wagons  in  1906. 
The  Champion  plant  continued  to  make  harvesters,  and  add- 
ed hay  machines  in  1903,  seeders  in  1906,  and  spreaders 
in  1908.  The  St.  Paul  plant  made  only  binder  twine.  The 
Osborne  plant  made  harvesters,  tilling  implements  and  twine. 
The  Akron  plant  made  auto-wagons.  The  Keystone  plant 
was  used  to  make  hay  machines,  binders,  corn  shellers,  and 
binder  twine.  The  most  important  new  establishment  was  a 
large  tractor  plant  erected  near  the  McCormick  works  in 
Chicago,  which  commenced  operations  in  1910.  Other  fac- 
tories were  either  built  or  purchased  in  the  following  coun- 
tries :  Canada,  France,  Russia,  Germany  and  Sweden.  Can- 
ada is  the  only  foreign  country  in  which  binders  are  made  by 
the  International  company. 

The  International  Harvester  Company  acquired  proper- 
ties and  plants  to  supply  its  raw  materials.  Among  these 
were  coal  and  iron  properties,  iron  and  steel  plants,  timber- 
lands  and  saw  mills,  and  facilities  for  securing  both  manila 
and  sisal  fiber  used  in  the  manufacture  of  binder  twine. 
This  policy  of  integration  enabled  the  company  to  secure 
its  chief  supplies  of  raw  materials  at  production  cost  in- 
stead of  depending  upon  the  open  market.  In  addition,  a 
number  of  short  and  relatively  unimportant  industrial  rail- 
roads were  acquired  soon  after  the  consolidation  was  ef- 
fected. The  Milwaukee  Harvester  Company,  whose  name 
was  changed  (1902)  to  the  International  Harvester  Com- 
pany of  America,  was  made  the  sales  company.  It  was  fa- 
vorably located  in  the  agricultural  belt  and  had  numerous 
warehouses. .  It  also  possessed  licenses  to  carry  on  its  busi- 
ness in  states  of  importance  to  the  trust  and  its  organiza- 
tion therefore  furnished  a  good  basis  for  the  sales  activities 
of  the  combination. 

No  increase  in  the  capital  stock  attended  the  expansion 
of  the  business  until  1910.  In  1907  the  company  had  divided 
its  stock  into  equal  parts  of  7  percent  preferred  and  com- 
mon. In  1910  a  $20,000,000  stock  dividend  was  declared 
upon  the  common,  raising  the  total  capital  stock  to  $140,- 


Trmt  Dissolution 

000,000.  This  was,  however,  not  overcapitalization  for  the 
net  assets  in  this  year,  exclusive  of  good  will,  were  valued 
by  the  Bureau  at  $144,589,739.12 

The  monopolistic  position  of  the  combination  in  the 
manufacture  and  sale  of  harvesting1  machines  is  clearly 
shown  in  the  following  table  compiled  from  the  Bureau's  re- 
port:13 


PROPORTION     or     AGRICULTURAL     IMPLEMENTS    MANUFACTURED     BY     THE 
INTERNATIONAL   HARVESTER   COMPANY 

Name  of  Implement    1902  1903  1904  1905  1906  1907  1908 190914 1910  1911 

Binders 90.9  94.2  89.1  90.0  87.0  88.5  89.7  87.1  87.0  87.0 

Mowers 82.5  87.7  82.1  84.1  79.0  81.6  82.1  80.7  77.7  76.7 

Rakes 67.8  80.0 72.0 

Tedders 52.6 73.2 

Corn  Harvesters 70.1 75.5 

Disk  Harrows 25.9  ....  43. 1 

Spring-tooth  Harrows 49 . 1 

Wheeled  Cultivators 11.5 

Farm  Wagons 13.013.315.0 

Hay  Stackers 24 . 2 

Hay  Loaders 20. 8 

Corn  Shredders 55.7 

Manure  Spreaders 55 . 1 

Binder  Twine 55.1   ....  62.7 


PROPORTION     OF     CHIEF    AGRICULTURAL     IMPLEMENTS     SOLD    BY    THE 
INTERNATIONAL   HARVESTER  COMPANY 

Name  of  Implement    1902  1903  1904  1905  1906  1907  1908  1909  1910  1911 

Binders 96.3  94.7  93.2  90.7  92.2  91.2  90.5  88.4  87.2 

Mowers 91.0  89.0  86.5  82.8  84.7  82.6  79.3  76.6  74.6 

Rakes 68.0 

Manure  Spreaders 50 . 0 

Corn  Harvesters 91 .7 

In  addition  to  the  various  harvesting  machines,  the  po- 
sition of  the  International  is  very  secure  in  the  manufac- 
ture of  disk  harows,  spring  tooth  harrows,  corn  shredders, 
and  manure  spreaders.  A  much  smaller  control  was  ob- 
tained in  haying  tools.  It  is  not  possible  to  show  conclu- 

12  Report  of  Bureau,  p.  238. 
"  Ibid.,  pp.  178-88. 

14  The  percentages  of  the  newer  lines  for  the  year  1909  were  deter- 
mined by  the  Bureau  from  the  census  data  of  1910. 


Important  Cases  Awaiting  Supreme  Court  Decisions     213 

sively  the  position  attained  in  the  new  lines  since  the  census 
does  not  contain  data  for  spreaders,  cream  separators,  gas 
engines,  tractors,  and  other  less  important  lines  of  machin- 
ery. In  the  production  of  binder  twine  the  company  con- 
stantly maintained  an  important  place;  its  proportion  in- 
creased from  55  percent  in  1909  to  62.7  in  1911,  when  the 
total  output  reached  128,700  tons. 

The  profits  of  the  International  have  been  computed  by 
the  Bureau  for  the  years  1903-1911.  The  net  earnings  for 
the  first  years  could  not  be  precisely  determined  because  the 
company  kept  no  general  balance  sheet  and  refused  to  submit 
one  until  1906.  The  reasons  given  were  that  the  merger 
was  formed  without  permitting  the  combining  interests  to 
know  the  book  values  under  which  their  rivals  came  into  the 
trust  and  that  the  publication  of  a  balance  sheet  would 
arouse  jealousies.  However,  the  Bureau  secured  the  data 
and  determined  the  approximate  earnings  for  those  years. 
The  rate  of  earnings  was  based  upon  the  investment,  exclu- 
sive of  good  will,  at  the  beginning  of  each  year.  Reserves 
from  earnings,  which  were  allowed,  are  given  below  showing 
the  net  amount  added  to  each  reserve  by  the  close  of 
1911  and  the  number  of  years  in  which  each  was  accumu- 
lated:15 

Depreciation,  1903-1911 j $8,774,923 

Special  maintenance,  1906-1911 298,821 

Collection  expense,  1906-1911 1,000,000 

Pension  fund,  1908-1911 1,027,719 

Fire  insurance,  1905-1911 2,061,399 

Industrial  accidents,  1910-1911 512,500 

Bad  debts  and  contingent  losses,  1903-1911 3,137,166 

Some  of  the  reserves,  though  allowed,  were  deemed  ex- 
cessive. The  funds  of  the  pension  and  accident  insurance 
reserves  were  provided  entirely  by  the  company.  These 
funds,  together  with  other  organized  welfare  projects  and 
a  profit  sharing  arrangement,  are  usually  pointed  out  by  the 
company  as  indicating  its  liberality  toward  its  employees. 
The  net  earnings  on  the  investment  on  this  basis  were:16 

"Report  of  Bureau,  pp.  221-233. 

"Ibid.,  p.  238. 


Trust  Dissolution 

1903 0.73     1906 6.74     1909..  .13.43 

1904 5.34     1907 7.31     1910 12.77 

1905 7.01     1908 8.73     1911 11.51 

The  profits  for  the  earlier  years  were  not  excessive,  but 
for  the  years  1909  to  1911  inclusive,  they  were  distinctly 
high,  averaging  12.5  percent.  However,  the  average  profit 
does  not  show  the  real  condition  with  respect  to  prices  in  a 
business  which  has  a  monopolistic  control  of  only  a  portion 
of  the  kinds  of  commodities  it  manufactures.  A  better  test 
is  to  determine  the  profits  obtained  from  each  line  of  prod- 
uct. The  rate  of  profit,  whether  based  upon  sales  or  in- 
vestment, for  the  highly  monopolized  lines,  such  as  grain 
and  corn  harvesting  machines,  was  much  higher  than  the 
corresponding  rates  for  the  newer  lines,  such  as  wagons  and 
manure  spreaders,  in  which  the  company  encountered  a 
greater  degree  of  competition.17 

Both  prices  and  margins  were  increased  in  the  harvesting 
machine  lines.  With  few  exceptions  prices  in  these  lines  were 
raised  but  once  from  1903  to  1911,  the  six  and  seven  foot 
binders  $7.50  each  in  1908;  the  eight  foot  binder  $5.00  in 
1907  and  $10.00  additional  in  1908;  the  corn  binder  $7.50 
in  1908;  the  five  foot  mowers  $2.50  in  1908;  and  the  six 
foot  mower  $3.00  in  1908.18  In  1908  a  larger  margin  was 
obtained  by  making  an  extra  charge  for  binder  transports, 
by  giving  fewer  tongue  trucks,  and  by  lowered  selling  ex- 
pense.19 The  advances  in  price  were  attributed  by  the  com- 
pany to  higher  costs  of  production,  but  on  the  other  hand 
in  several  of  the  lines  in  which  severer  competition  prevailed 
prices  were  reduced.  In  1912,  there  was  a  price  reduction 
amounting  to  $5.00  for  grain  binders  and  to  proportional 
amounts  for  other  harvesting  machines.  This  reduction  was 
attributed  by  the  company  to  lower  costs  of  production,  but 
it  followed  preparations  of  the  Government  for  filing  a  bill 
against  the  company  to  dissolve  it.20  The  retail  prices  of 
commodities  sold  abroad  by  the  International  were,  with  few 

1T  Report  of  Bureau,  pp.  340-4. 
"Ibid.,  p.  254. 
"Ibid.,  p.  250. 
80  Ibid.,  p.  254. 


Important  Cases  Awaiting  Supreme  Court  Decisions     215 

exceptions,  higher  than  the  domestic  retail  prices.  The 
Bureau  found  no  noteworthy  instances  of  lower  prices 
abroad.  In  some  instances  it  is  true  that  sales  below  cost 
were  found,  but  these  appeared  to  be  accounted  for  by  ab- 
normally high  selling  expense,  aggressive  competition,  or 
other  peculiar  conditions. 

The  strength  of  the  International  Harvester  Company 
has  been  attributed  to  three  sources :  its  productive  efficiency, 
its  financial  resources,  and  its  methods  of  competition.  The 
Bureau  held  that  the  productive  efficiency  resided  chiefly  in 
the  low  manufacturing  costs,  which  were  due  mainly  to  the 
large  output.  This  advantage  was  held  to  apply  almost 
exclusively  to  harvesting  machines.  In  no  year  from  1903 
to  1911  did  the  output  of  any  independent  company  exceed 
12  percent  of  the  output  of  grain  binders  or  16  percent  of 
the  mowers  from  the  McCormick  plants.21  But  the  output 
of  the  Deering  and  McCormick  plants  in  no  year  subse- 
quent to  the  consolidation  was  larger  than  in  the  years 
prior  to  1902. 22  The  factory  cost  of  binders  for  the  com- 
pany in  1910-11  was  $56.32  as  compared  with  $70.83  for 
the  independents.23  But  this  difference,  though  great,  was 
no  greater  than  between  the  factory  cost  of  the  company's 
own  plants.24  It  will  be  agreed  that  the  International  was 
a  merger  of  the  best  plants,  but  to  prove  that  its  monopo- 
listic position  resulted  in  greater  productive  efficiency  it  is 
necessary  to  show  that  its  plants  have  greater  efficiency  since 
consolidating.  Nowhere  is  there  any  evidence  tending  to 
show  more  efficient  production.  The  iron  and  steel  produc- 
tion carried  on  by  the  company  proved  to  be  profitable  by 
supplying  raw  materials  directly.  The  selling  expense  of 
the  combination  was  much  higher  than  for  the  independents 
because  the  former  sought  a  large  volume  of  sales  without 
reducing  prices  to  the  consumer.  The  company's  selling 
organization  consisting  of  92  general  agencies,  about  800 
principal  salesman,  from  850  to  1600  canvassers,  and  nearly 
40,000  retail  de'krs,  was  expensive,  but  it  was  a  powerful 

21  Report  of  Bt^    •.<;,  p.  257. 

22  Ibid.,  p.  258. 

23  Ibid.,  p.  262. 
21  Ibid.,  p.  263. 


216  Trust  Dissolution 

means  when  used  by  a  monopoly  to  sell  its  products  and  to 
secure  a  dominant  position  in  other  branches  of  the  trade. 

The  second  important  source  of  power  is  its  financial 
support.  This  came  through  the  act  of  consolidation  itself, 
which  brought  together  the  business  and  financial  resources 
of  nearly  all  the  large  harvesting  machine  companies.  The 
promoters,  the  Morgan  interests,  and  Mr.  Rockefeller,  fa- 
ther-in-law to  one  of  the  McCormicks,  each  contributed  large 
financial  aid.25  One  way  in  which  the  financial  resources 
were  used  with  telling  effect  was  in  extending  unusually  long 
terms  of  credit.  Farmers  and  dealers  were  given  credit  fre- 
quently extending  two  and  three  years  and  sometimes  longer. 
Such  a  policy  aided  greatly  in  selling  machinery  to  farmers 
who  generally  were  unable  to  pay  cash.  Competitors  with 
small  working  capital  were  in  this  respect  at  a  disadvan- 
tage. Exceptional  resources  are  not  objectionable,  but  if 
they  are  used  in  connection  with  a  monopolistic  control  to 
insure  domination  over  new  lines  they  may  become  a  public 
menace.  In  this  case  this  advantage  was  secured  largely 
through  an  act  of  combination  alleged  to  be  unlawful. 

The  third  chief  source  of  power  through  which  the  Inter- 
national not  only  protected  its  monopolistic  position,  but 
also  extended  its  business  rapidly  into  newer  lines  was  in  the 
use  of  improper  methods  of  competition.  Among  the  meth- 
ods, regarded  as  objectionable  by  the  Bureau,  the  manufac- 
turers and  the  dealers,  were:  26  (1)  The  maintenance  of  pre- 
tended competition  in  the  earlier  years.  Many  competitors 
were  secretly  purchased  and  operated  as  independent  com- 
panies. This  was  of  commercial  advantage  since  many  buy- 
ers were  opposed  to  patronizing  the  International.  (2)  The 
common  practice  of  allotting  its  desirable  brands  of  harvest- 
ing machines  so  as  to  secure  the  co-operation  of  an  undue 
proportion  of  the  dealers.  By  limiting  each  dealer  to  only 
one  brand  of  its  machines,  the  company  could  monopolize 
the  services  of  a  large  proportion  of  the  desirable  dealers  in 
any  locality.  (3)  The  coercion  of  dealers  to  handle  some 
lines  of  the  company's  machines  exclusively  under  the  pen- 


26  Report  of  Bureau,  p.  163. 
28  Ibid.,  pp.  290-326. 


Important  Cases  Awaiting  Supreme  Court  Decisions     217 

alty  of  having  their  contracts  cancelled.  (4)  Full-line  forc- 
ing, which  required  dealers  to  order  additional  lines  of  prod- 
ucts as  a  condition  of  retaining  the  agency  of  some  desir- 
able make  of  harvesting  machines.  (5)  The  use  of  sug- 
gested price  lists.  Prior  to  1905  the  retail  prices  were 
stipulated  in  the  contracts  with  the  dealers.  After  that 
year,  to  avoid  illegal  price  fixing,  suggested  price  lists,  either 
printed  or  oral,  were  frequently  circulated  among  the  deal- 
ers. While  the  dealer  was  not  compelled  to  observe  these 
prices  it  is  generally  believed  that  the  suggested  price  lists 
served  to  prevent  dealers  making  concessions  in  prices  in  cer- 
tain lines.  (6)  The  granting  of  special  and  discriminating 
prices  and  terms.  Such  a  policy  was  practiced  through  local 
price  regulation,  unequal  freight  charges  or  through  the 
grant  of  unusually  good  terms  of  credit.  In  the  newer  lines, 
such  as  harrows,  wagons,  spreaders,  gasoline  engines,  local 
concessions  in  prices  and  terms  were  found  in  various  parts 
of  the  country.  Still  more  important  was  the  practice  of 
establishing  over  large  areas  unusually  low  prices,  or  of 
granting  better  terms  of  credit  than  were  customary.  This 
method  of  defeating  competitors  was  possible  because  of  the 
monopolistic  profit  derived  from  harvesting  machines.  (7) 
Misrepresentations  by  salesmen  regarding  competitors.  The 
most  important  of  these  was  the  assertion  that  the  purchas- 
ers of  competing  harvesting  machines  would  be  unable  to 
secure  repair  parts,  the  implication  being  that  competitors 
could  not  remain  long  in  the  business. 

The  International  company  has  not  resorted  to  grossly 
unfair  methods  so  frequently  as  have  some  of  the  other  well 
known  industrial  monopolies.  The  company  denies  that  it 
has  within  recent  years  practiced  the  objectionable  methods 
which  it  admits  were  used  in  the  earlier  years.  The  Bureau 
believed  this  claim  was  to  some  extent  true,  but  the  numer- 
ous complaints  received  with  respect  to  conditions  in  recent 
years  clearly  convinced  it  that  these  objectionable  methods 
had  by  no  means  been  eliminated.27  In  the  course  of  the 
Bureau's  investigation  concerning  complaints  against  the 
methods  employed  by  the  company,  its  agents  visited  over 
"Report  of  Bureau,  p.  326. 


218  Trust  Dissolution 

eight  hundred  retail  dealers  in  about  six  hundred  towns  scat- 
tered throughout  twenty-seven  states.  Securing  statements 
as  representative  as  possible,  the  results  showed  25  percent 
favorable  to  the  trust,  20  percent  non-committal,  50  percent 
specifically  unfavorable,  and  5  percent  unfavorable  without 
specific  complaint.28  Normally  a  large  proportion  of  deal- 
ers doing  business  with  a  large  company  will  be  favorably 
disposed  towards  it.  The  fact  that  50  percent  of  the  dealers 
made  specific  complaints  against  the  methods  of  the  com- 
pany indicates  good  ground  for  complaint.  The  considera- 
tion of  the  chief  sources  of  power  of  the  International  show 
that  the  company  has  not  shared  the  advantages  of  combina- 
tion with  the  consumer  but  used  them  to  safeguard  its  monop- 
olistic control  and  to  extend  its  operations  into  new  lines. 

In  April,  1912,  the  Government  brought  suit  to  dissolve 
the  International  Harvester  Company,  charging  the  acquisi- 
tion and  maintenance  of  a  monopoly  in  harvesting  and  ag- 
ricultural machinery  and  twine.  Admittedly  on  account  of 
this  suit  the  company  made  a  division  of  its  plants  and  busi- 
ness.29 In  January,  1913,  it  organized  the  International 
Harvester  Corporation  of  New  Jersey,  to  which  were  trans- 
ferred all  the  foreign  plants  and  business  of  the  company, 
together  with  all  the  domestic  plants  exclusively  engaged  in 
the  manufacture  of  the  so-called  new  lines  of  machinery. 
The  capital  stock  of  the  Corporation  was  $70,000,000,  of 
which  $30,000,000  was  preferred.  The  capital  stock  was 
exactly  one-half  of  that  of  the  parent  company  and  was 
divided  into  the  same  proportions  of  preferred  and  common. 
In  the  following  month  the  International  Harvester  Com- 
pany reduced  its  capital  stock  to  $70,000,000,  of  which  $30,- 
000,000  was  preferred.  The  stockholders  turned  in  their 
shares  for  cancellation  and  received  in  exchange  new  stock 
of  one-half  the  amounts  of  preferred  and  common  so  turned 
in,  together  with  equal  amounts  of  preferred  and  common 
stock  in  the  International  Harvester  Corporation.  At  the 
same  time,  the  name  of  the  old  company  was  changed  to  the 

28  Report  of  Bureau,  p.  291. 

29  Ibid.,  pp.  169  et  seq. 


Important  Cases  Awaiting  Supreme  Court  Decisions     219 

International  Harvester  Company  of  New  Jersey.  In  the 
division,  the  companies  claimed  that  the  assets  and  liabili- 
ties were  equally  divided  between  them.  The  Bureau  found 
the  statements  of  the  two  companies  too  condensed  to  prove 
this  claim.  The  domestic  plants  and  properties  conveyed  to 
the  Harvester  Corporation  included  all  the  transportation 
companies  and  six  manufacturing  plants,  the  Akron,  New- 
ark Valley,  Milwaukee,  and  the  Piano,  Tractor  and  Weber 
plants  at  Chicago.  These  plants  manufactured  gasoline 
and  oil  engines,  tractors,  auto-wagons,  cream  separators, 
wagons,  manure  spreaders,  tilling  and  planting  implements. 
Nothing  was  stated  about  discontinuing  the  manufacture  of 
these  or  other  new  lines  at  certain  other  plants  retained  by 
the  Harvester  Company,  or  whether  the  International  Harv- 
ester Company  of  America,  the  sales  company,  would  be 
continued,  or,  if  continued,  whether  its  numerous  warehouses 
and  selling  organizations  would  be  attached  to  one  of  the 
companies  or  divided  between  them. 

If  this  division  was  intended  as  a  proposed  plan  of  dis- 
solution it  was  entirely  unsatisfactory.  Both  the  Bureau 
and  the  Government  disapproved  of  it  as  such.  The  new 
companies  represented  all  the  interests  of  the  old  company, 
and  the  stock  control  remained  in  the  same  hands  and  in  the 
same  proportions  as  before.  The  one  company,  the  Har- 
vester Company  of  New  Jersey,  retained  all  the  harvesting 
machine  plants,  thereby  perpetuating,  without  the  semblance 
of  a  division,  the  monopolistic  position  in  this  branch  of  the 
business. 

The  Government  in  its  suit  against  the  International 
Harvester  Company  and  others  obtained  a  decree  of  disso- 
lution from  the  Circuit  Court  in  1914.30  The  court  held 
that  the  International  Harvester  Company  was  from  the 
beginning  an  illegal  combination  and  that  all  the  defendant 
subsidiary  companies  were  parties  to  it.  The  decree  or- 
dered that  "the  entire  combination  and  monopoly  be  dis- 
solved, that  the  defendants  have  90  days  in  which  to  report 
to  the  court  a  plan  for  the  dissolution  of  the  entire  unlawful 
business  into  at  least  three  substantially  equal,  separate, 
30  214  Fed.  Rep.  987-1012. 


Trust  Dissolution 

distinct,  and  independent  corporations,  with  wholly  sepa- 
rate owners  and  stockholders."  31  The  court  detained  fur- 
ther jurisdiction  of  the  case.  The  defendants  appealed  to 
the  Supreme  Court  where  the  case  was  argued  early  in  1915 
and  is  still  pending. 

NOTE — Soon  after  the  above  decree  was  entered  the 
Court  modified  it  so  that  instead  of  requiring  a  division  of 
the  assets  among  three  corporations  it  required  that  the 
division  be  "in  such  manner  and  into  such  number  of  parts 
of  separate  and  distinct  ownership  as  may  be  necessary  to 
restore  competitive  conditions."  During  the  summer  of 
1918  the  defendants  withdrew  their  appeal  to  the  Supreme 
Court  and  asked  that  an  order  be  given  to  carry  the  above 
decree  into  effect,  and  in  accordance  with  the  provisions  of 
the  decree  they  filed  with  the  Court  a  plan  for  the  division 
of  the  assets.  On  November  2,  1918,  the  Court  entered  the 
final  decree  in  the  case.  It  provided  that  the  defendant 
corporations,  the  International  Harvester  Company  (for- 
merly of  New  Jersey)  and  the  International  Harvester  Com- 
pany of  America,  and  the  individual  defendants  and  their 
agents  should  dispose  of  the  harvesting  machine  lines  made 
and  sold  by  them  under  the  trade  names  of  "Osborne," 
"Milwaukee,"  and  "Champion,"  respectively,  together  with 
all  patterns,  drawings,  trade  names,  etc.,  pertaining  to  these 
three  lines  of  machinery,  and  likewise  to  sell  to  the  pur- 
chasers the  "Champion"  works  and  plants  at  Springfield, 
Ohio,  and  the  "Osborne"  works  at  Auburn,  New  York.  The 
decree  provided  that  the  sale  of  these  properties  be  made 
at  fair  and  reasonable  prices  with  approval  and  supervision 
of  the  Government  or  Court  and  to  approved  purchasers, 
none  being  defendants,  who  are  responsible  manufacturers 
of  agricultural  implements.  Should  the  purchaser  be  a  cor- 
poration none  of  the  defendants  were  allowed  to  hold  sub- 
stantial stock  interest  in  it.  The  defendants  were  pro- 
hibited from  having  more  than  one  representative  or  agent 
in  any  city  or  town  in  the  United  States  for  the  sale  of 
harvesting  machines  or  other  agricultural  implements.  Fi- 
31 214  Fed.  Rep.,  p.  1001. 


Important  Cases  Awaiting  Supreme  Court  Decisions     221 

nally,  if  eighteen  months  after  the  close  of  the  present  war 
these  measures  have  not  proved  adequate,  in  the  opinion 
of  the  Government,  to  restore  competitive  conditions  in  the 
industry  the  Government  is  to  have  the  right  to  such  further 
relief  in  the  case  as  may  be  necessary.  As  a  result  of  the 
withdrawal  of  the  appeal  by  the  defendants,  the  important 
issue  of  law  raised  by  the  Harvester  case  did  not  come  before 
the  Supreme  Court  for  a  decision. 


THE    UNITED    STATES    STEEL    CORPORATION  32 

Consolidation  in  the  steel  industry  came  later  than  in 
many  others.  The  early  nineties  were  unfavorable  to  large 
consolidations  but  in  1898  an  active  movement  in  that  direc- 
tion took  place  in  the  steel  industry.  Within  three  and  one- 
half  years  this  movement  culminated  in  the  organization  of 
the  United  States  Steel  Corporation  which  brought  about 
three-fifths  of  the  steel  and  iron  industry  of  the  country 
under  a  single  management.33  This  concentration  in  one  of 
the  most  basic  industries,  including  also  the  ownership  of  one 
of  the  most  important  national  resources,  iron  ore,  materially 
concerned  the  welfare  of  the  whole  people. 

Three  periods  may  be  distinguished  in  the  history  of 
combination  in  this  industry.  The  first  period  led  up  to 
1898.34  The  steel  industry  during  this  period  was  charac- 
terized by  the  competition  of  many  independent  companies. 
Although  there  was  a  gradual  tendency  toward  larger  com- 
panies, both  through  expansion  and  combination,  near  the 
close  of  the  period,  the  depressed  business  conditions  did  not 
greatly  favor  the  organization  of  great  corporations.  The 
Illinois  Steel  Company,  organized  in  1889  with  $18,000,000 
of  issued  stock,  was  a  consolidation  of  three  previously  com- 
peting steel  concerns.35  The  Carnegie  Steel  Company,  or- 
ganized in  1892  with  a  capital  stock  of  $25,000,000,  was  the 

83  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry, 
Parts  I,  II  and  III. 

83  Ibid.,  Part  I,  p.  63. 

84  Ibid.,   pp.    63-78. 
35  Ibid.,  pp.  63,  120. 


Trust  Dissolution 

largest  single  company  in  the  steel  industry  at  this  time.36 
All  the  plants  of  the  latter  company  were  near  Pittsburg.  It 
acquired  several  competing  concerns  and  held  a  large  inter- 
est in  the  H.  C.  Frick  Coke  Company,  the  largest  company 
in  the  coke  industry.  The  Colorado  Fuel  and  Iron  Company 
was  organized  in  1892  as  a  merger  of  the  Colorado  Fuel  Com- 
pany and  the  Colorado  Coal  and  Iron  Company.  This 
company,  with  a  capital  stock  of  $13,000,000,  was  the  only 
important  concern  in  the  industry  at  this  time  in  the  far 
west.  The  chief  interest  of  the  company  was  in  coal  min- 
ing although  it  has  iron  ore  lands  and  a  small  steel  plant. 
With  these  it  entered  into  extensive  steel  operations  in  the 
late  nineties.  The  Tennessee  Coal,  Iron  and  Railroad  Com- 
pany, beginning  as  a  coal  company  in  the  early  fifties,  en- 
tered the  iron  business  in  1881.  It  later  acquired  other  im- 
portant coal  and  iron  interests  which  made  it  the  leading 
company  in  the  southern  iron  district.  The  Cambria  Iron 
Company  and  the  Bethlehem  Iron  Company  were  also  dis- 
tinguished by  extensive  operations  before  the  close  of  the 
period. 

Most  of  the  above  concerns  were  engaged  chiefly  in  the 
production  of  the  simpler  and  heavier  forms  of  steel  prod- 
ucts, such  as  rails,  plates,  and  beams,  or  of  billets,  slabs, 
bars  and  other  kinds  of  semi-finished  steel  used  in  making 
the  more  elaborated  steel  products.  They  sold  their  output 
mainly  to  the  manufacturers  of  the  finished  steel  products, 
such  as  nails,  wire,  tin  plate  and  tubes.  Seven  concerns  in 
1898  controlled  no  less  than  fifty  percent  of  the  total  pro- 
duction of  steel  ingots,  the  chief  form  of  crude  steel  derived 
from  pig  iron.37  However,  the  concerns  were  owned  inde- 
pendently and,  despite  the  existence  of  some  price  agree- 
ments, active  competition  was  the  distinguishing  feature  of 
the  industry. 

In  general  the  manufacture  of  finished  products  was  dis- 
tributed among  a  large  number  of  small  concerns,  the  big 
exception  being  the  Consolidated  Steel  and  Wire  Company. 
Except  where  hindered  by  pools  and  price  agreements,  com- 

16  Report  of  Bureau,  Part  I,  p.  64. 
87  Ibid.,  p.  65. 


Important  Cases  Awaitmg  Supreme  Court  Decisions 

petition  was  very  active  among  the  makers  of  finished  prod- 
ucts.38 Similar  conditions  of  scattered  ownership  and  com- 
petition existed  in  the  industry  of  iron  mining.39  Among 
the  few  large  iron  mining  companies  were  the  Minnesota  Iron 
Company  and  the  Lake  Superior  Consolidated  Iron  Mines. 
Each  of  these  owned  very  valuable  ore  properties  and  rail- 
way facilities. 

Integration  in  the  steel  industry,  which  became  so  promi- 
nent later,  was  comparatively  rare  in  the  early  nineties. 
Each  principal  branch  was  largely  under  separate  ownership 
and  control.  Iron  mining  was  generally  a  business  by  itself 
and  few  steel  companies  held  important  ore  lands  or  coal. 
Most  of  the  coal  used  in  the  industry  was  produced  under 
competitive  conditions.  Likewise  nearly  all  the  iron  and 
steel  companies  depended  upon  separate  concerns  for  the 
transportation  of  their  products.  The  tendency  toward  in- 
tegration was  most  marked  in  the  east  and  south  where  iron 
and  coal  deposits  were  found  near  each  other.  The  Illinois 
steel  interests  acquired  considerable  coking  coal  land  in 
Pennsylvania  and  extensive  interests  in  iron  ore  deposits  and 
ore  railroads  and  vessels  in  the  lake  region.40  The  Carnegie 
Company,  through  the  H.  C.  Frick  Coke  Company,  held  enor- 
mous reserves  of  coke  and  coal  but  owned  very  little  ore  land, 
and  during  the  early  nineties  depended  almost  wholly  upon 
others  for  its  supply  of  ore.  Near  the  close  of  this  period 
the  Carnegie  Company  completely  reversed  its  policy  as  to 
owning  ore  lands.  The  far  reaching  effect  of  this  change  will 
be  noted  later.  Integration,  therefore,  during  the  early  nine- 
ties was  not  highly  developed  and  was  limited  to  a  few  of 
the  larger  concerns. 

Although  competition  was  the  dominating  feature  in  the 
iron  and  steel  industry  during  this  period,  pooling  agree- 
ments were  repeatedly  entered  into.  Many  of  these  were  of 
short  duration  and  ineffective.  The  steel  rail  pool,  wire  nail 
pool,  billet  pool,  and  ore  pool  were  examples.  Of  these  by 
far  the  most  important  was  the  steel  rail  pool,  formed  in 

88  Report  of  Bureau,  Part  I,  pp.  65-fl. 

89  Ibid.,  p.  66. 
40  Ibid.,  p.  67. 


224  Trust  Dissolution 

1887.  The  manufacturers  of  more  than  90  percent  of  the 
country's  output  of  steel  rails  entered  into  an  agreement 
by  which  their  combined  output  was  to  be  controlled  and  al- 
lotted to  each  party  upon  an  agreed  percentage  basis.41 
The  pool  was  well  organized  and  advanced  the  price  of  steel 
rails  to  $28  per  ton.  The  large  investment  required  for  the 
production  of  steel  rails  helped  to  maintain  this  pool  by 
discouraging  the  rise  of  competitors.  The  agreement  was 
broken  in  1893  but  was  quickly  renewed.  In  1897  it  again 
collapsed,  causing  steel  rails  to  sell  freely  at  from  $20  to 
$15  per  ton.42 

The  wire-nail  pool  of  1895  included  a  large  portion  of 
the  manufacturers  of  wire  and  cut  nails.  The  pool  imme- 
diately advanced  prices  and  in  less  than  a  year  the  base 
price  had  risen  from  $1.20  per  keg  to  $2.55.43  The  ex- 
cessive prices  tempted  competitors  to  enter  the  trade,  espe- 
cially since  only  a  small  investment  was  required,  and  as  a 
result  the  nail  pool  collapsed  after  eighteen  months  of  ex- 
istence. The  steel-billet  pool  likewise  ended  after  eight 
months  of  stormy  existence.  The  latter  failed  to  include 
several  large  manufacturers  of  billets.  The  ore  pool  also 
had  a  stormy  career  and  owing  to  important  changes  in  the 
ore  industry  was  forced  to  lower  its  standard  price  from  $4* 
to  $2.75  per  ton.44  Similar  to  the  above  pools  were  the 
structural  steel  and  the  cast-iron  pipe  pools.  The  latter 
was  national  in  scope  and  was  later  dissolved  by  a  decree  of 
the  Supreme  Court.45  Other  pool  agreements  were  present 
in  nearly  every  branch  of  the  iron  and  steel  industry.46  Not- 
withstanding these  repeated  efforts  to  combine,  competition 
remained  the  dominant  feature  of  the  iron  and  steel  industry 
in  the  middle  nineties. 

The  second  period  in  the  history  of  combination  in  the 
steel  industry  was  very  short,  extending  from  1898  to  1900. 
This  period  was  characterized  by  an  active  movement  toward 


41  Report  of  Bureau,  Part  I,  pp.  69-73. 

48  Ibid.,  p.  72. 

48  Ibid.,  p.   73. 

44  Ibid.,  p.  74. 

48  175  U.  S.,  211. 

"Report  of   Bureau,   Part   I,  p.  75. 


Important  Cases  Awaiting  Supreme  Court  Decisions     225 

combination  in  nearly  every  branch  of  the  iron  and  steel  in- 
dustry. As  a  result,  the  great  and  rapidly  growing  indus- 
try was  largely  concentrated  in  the  hands  of  relatively  few 
concerns,  and  the  manufacture  of  distinct  lines  of  products 
was  frequently  monopolized  by  a  single  concern.  Three  un- 
derlying causes  of  consolidation  were  present — the  restric- 
tion of  competition,  the  advantages  of  integration,  and  the 
profits  to  be  derived  from  inflated  securities.47  The  restric- 
tion of  competition  was  the  strongest  motive.  The  various 
pools  had  shown  what  profits  could  be  gained  by  concerted 
action,  but  it  was  found  impossible  to  maintain  the  pools  for 
any  great  length  of  time,  and  therefore  in  1896  and  1897 
there  was  a  general  abandonment  of  pools  in  the  industry. 
The  manufacturers  sought  more  comprehensive  and  endur- 
ing organizations  for  increasing  their  returns. 

The  advantages  of  integration  exerted  considerable  in- 
fluence. Integration,  extending  from  the  ownership  and  pro- 
duction of  raw  materials  to  the  manufacture  of  the  finished 
product,  had  already  been  introduced  by  several  companies. 
Transportation  and  technical  progress  stimulated  integra- 
tion by  making  possible  production  on  a  larger  scale.  The 
combining  and  co-ordinating  of  successive  stages  of  manufac- 
ture resulted  in  the  saving  of  fuel  for  reheating  the  metal, 
of  labor  and  time  in  moving  or  handling  the  material,  and 
of  waste  through  the  better  utilization  of  by-products.  In- 
tegration also  allowed  the  saving  of  profits  paid  to  others 
for  raw  materials,  as  well  as  being  advantageous  in  securing 
a  ready  supply  of  such  materials.  An  impetus  toward  inte- 
gration and  consolidation  was  given  by  the  changed  policy 
of  the  Carnegie  Company  respecting  the  ownership  of  iron 
ore.  In  1896  this  company,  which  had  been  almost  wholly 
dependent  upon  others  for  its  ore  and  transportation,  made 
a  fifty-year  contract  with  the  Lake  Superior  Consolidated 
Iron  Mines,  controlled  by  the  Rockefeller  interests,  leasing 
large  ore  properties  at  a  royalty  of  25  cents  per  ton.48  The 
contract  provided  that  the  ore  should  be  transported  on  rail- 
roads and  vessels  controlled  by  the  Rockefeller  interests. 

"Report  of  Bureau,  Part  I,  pp.  75-9,  82-5. 
48  Ibid.,  pp.  76-8. 


Trust  Dissolution 

News  of  this  transaction  caused  a  demoralization  in  the  ore 
industry,  the  price  of  ore  declining  from  $4  to  $2.50  per 
ton.49  The  Carnegie  interests,  taking  advantage  of  this 
situation,  soon  acquired  through  other  leases  a  large  re- 
serve tonnage  in  the  lake  region.  The  acquisition  by  this 
company  of  coal  and  ore  for  years  to  come  aroused  other 
large  iron  and  steel  concerns  who  felt  compelled  to  follow 
the  same  policy  in  order  to  effect  the  same  saving  and  to  be 
assured  of  future  supplies  on  an  equal  basis.  As  a  result  the 
bulk  of  the  ore  deposits  of  the  lake  region  was  soon  under 
the  control  of  less  than  a  dozen  interests.  The  best  coking 
coal  fields  of  the  east  were  leased,  largely  by  the  same  inter- 
ests, with  almost  equal  rapidity. 

The  third  cause  of  the  consolidation  movement  was  the 
effort  both  by  the  manufacturers  who  took  stock  in  the  new 
organization  and  by  the  promoters,  to  secure  profits  from  the 
sale  of  inflated  securities.  Large  profits  in  the  industry  fol- 
lowed the  return  of  general  prosperity  and  the  demand  for 
securities  was  good.  Each  consolidation  or  reorganization 
was  attended  with  the  issue  of  additional  securities.  Usually 
the  securities  were  doubled  in  amount  and  the  promoter's 
commission  was  excessive. 

The  formation  of  large  consolidations  began  in  1898. 
These  combinations,  with  capitalizations  ranging  from  $30,- 
000,000  to  $100,000,000,  were  usually  mergers  of  many 
smaller  companies.  One  of  the  earliest  was  the  Federal 
Steel  Company  with  $100,000,000  of  issued  stock.50  This 
was  a  merger  of  the  Illinois  Steel  Company,  the  Minnesota 
Iron  Company,  and  several  other  companies,  including  valu- 
able transportation  interest.  The  aim  of  the  consolidation 
was  to  become  independent  as  far  as  possible  in  respect  to 
ore,  fuel,  transportation,  and  manufacturing  facilities.  It 
controlled  15  percent  of  the  total  ingot  production.51  The 
National  Steel  Company,  formed  by  the  Moore  interests  in 
1899  with  $58,000,000  of  issued  stock,  united  a  number  of 
competing  manufacturers  of  crude  and  heavy  steel  products, 
and  acquired  other  valuable  ore  and  transportation  inter- 

48  Report  of  Bureau,  Part  I,  p.  77. 
"Ibid.,  pp.   87-9. 
61  Ibid.,  p.  88. 


Important  Cases  Awaiting  Supreme  Court  Decisions 

ests.  The  Moore  interests  also  organized  three  other  com- 
panies, as  noted  below,  which  manufactured  more  finished 
products.  They  purchased  their  raw  material  from  the  Na- 
tional Steel  which  produced  12  percent  of  the  ingot  output.52 
In  1900  the  Carnegie  interests  reorganized  with  a  capitali- 
zation of  $320,000,000,  including  bonds.53  This  company, 
which  controlled  18  percent  of  the  ingot  production,  was  the 
largest  single  unit  in  the  industry.54  It  was  a  close  corpora- 
tion, efficiently  managed,  and  strongly  financed,  having  re- 
invested much  of  its  profits  in  the  business.  Its  40,000 
acres  of  coking  coal  lands  were  among  the  company's  most 
valuable  assets,  and  it  owned  also  valuable  natural  gas,  iron 
ore,  and  transportation  properties.  It  was  perhaps  the  most 
integrated  and  independent  steel  company,  although  it  de- 
pended largely  upon  the  manufacturers  of  finished  products 
for  the  sale  of  its  output. 

The  three  foregoing  steel  companies  were  by  far  the  most 
important  and  strongly  entrenched  companies  in  the  steel 
industry.  They  were  known  as  the  "primary  group,"  or 
those  making  chiefly  crude  and  heavy  steel  products.  They 
together  controlled  45  percent  of  the  country's  ingot  pro- 
duction. Though  highly  integrated  they  were  largely  de- 
pendent for  the  sale  of  their  products  upon  the  manufactur- 
ers of  more  elaborated  steel  products  who  purchased  the  in- 
gots as  their  raw  materials. 

Six  consolidations  were  effected  among  the  manufactur- 
ers of  the  lighter  and  more  finished  products,  which  were 
known  as  the  "secondary  group."  The  first  among  these 
was  the  American  Tin  Plate  Company  organized  in  1898  by 
the  Moore  interests,  with  $46,325,000  of  stock.  It  acquired 
thirty-nine  different  plants  and  obtained  an  almost  complete 
monopoly  of  the  tin  plate  business.55  In  the  following  year, 
the  Moore  interests  organized  the  American  Steel  Hoop 
Company  with  $33,000,000  of  stock,  which  acquired  nine 
competing  concerns.  The  next  year  the  Moore  interests 
organized  the  American  Sheet  Steel  Company  with  $49,- 

52  Report  of  Bureau,  Part  I,  p.  89. 

03  Ibid.,    pp.    85-7. 

64  Ibid.,  p.  87. 

66  Ibid.,  pp.  90-91. 


Trust  Dissolution 

000,000  of  stock.  This  company  controlled  70  percent  of 
the  country's  output  of  sheet  steel.56  All  three  companies 
were  consolidations  of  competing  concerns  organized  to  re- 
strict competition  and  to  afford  promoter's  profits.  The 
American  Steel  and  Wire  Company  was  organized  in  1899 
for  the  same  reasons,  with  $90,000,000  of  stock.57  Its 
products  were  chiefly  nails,  plain  and  barbed  wire,  and  fenc- 
ing. The  consolidation  included  all  the  wire  manufacturers 
and  effected  what  the  nail  pool  had  failed  to  do.  The  com- 
pany immediately  began  to  strengthen  its  position  by  acquir- 
ing ore,  coal,  and  transportation  properties.  In  the  same 
year  the  National  Tube  Company  was  organized  with  $80,- 
000,000  of  stock.  It  was  a  merger  of  thirteen  concerns 
controlling  75  percent  of  the  output  of  iron  and  steel  wrought 
tubing.58  The  company  depended  largely  upon  the  Carnegie 
Company  for  its  raw  materials.  The  American  Bridge  Com- 
pany completed  the  list  of  those  known  as  the  secondary 
group.  This  company,  which  issued  $63,000,000  of  stock, 
was  a  consolidation  of  previously  competing  concerns  en- 
gaged in  the  production  of  steel  used  in  the  construction  of 
bridges  and  buildings.  It  depended  upon  other  steel  con- 
cerns for  its  raw  materials.  Two  other  consolidations  may 
be  mentioned  in  this  connection.  The  Shelby  Steel  Tube 
Company  was  a  consolidation  of  manufacturers  controlling 
90  percent  of  the  output  of  drawn  or  seamless  tubing.59  It 
was  organized  in  1900  with  $15,000,000  of  capital  stock. 
The  other  was  the  Lake  Superior  Consolidated  Iron  Mines, 
which  was  organized  prior  to  this  period  by  the  Rockefeller 
interests.  At  the  close  of  the  period,  it  had  a  capitalization 
of  $29,400,000.60  It  did  no  manufacturing,  but  was  im- 
portant in  the  steel  industry  because  of  its  vast  ore  reserve 
and  ore-producing  and  transporting  facilities. 

All  of  the  foregoing  consolidations,  including  the  pri- 
mary and  secondary  groups,  were  subsequently  brought  to- 
gether in  the  United  States  Steel  Corporation.  With  two 

58  Report   of  Bureau,  Part   I,  pp.  90-91. 
67  Ibid.,  pp.  91-92. 
58  Ibid.,  pp.  92-3. 
69  Ibid.,  p.  93. 
60  Ibid.,  pp.  93-4. 


Important  Cases  Awaiting  Supreme  Court  Decisions     229 

exceptions,  including  the  Carnegie  Company,  the  consolida- 
tions were  attended  with  large  over-capitalization.61  In 
nearly  every  case,  the  preferred  stock  issue  alone  covered  the 
tangible  assets.  The  stock  commissions  received  by  the  pro- 
moters in  seven  of  the  consolidations  reached  a  total  of 
306,811.62 

There  were  other  consolidations,  as  well  as  notable  re- 
organizations and  expansions,  on  the  part  of  companies 
which  did  not  enter  the  Steel  Corporation.  These  were 
known  as  "outside"  companies.  Chief  among  these  were 
the  Republic  Iron  and  Steel  Company,  Sloss-Sheffield  Steel 
and  Iron  Company,  Jones  and  Laughlins  (Ltd.),  Lackawan- 
na  Iron  and  Steel  Company,  Pennsylvania  Steel  Company, 
Cambria  Iron  Company,  Colorado  Fuel  and  Iron  Company, 
and  the  Tennessee  Coal,  Iron  and  Railroad  Company.  The 
last  company,  capitalized  at  $25,000,000,  held  very  exten- 
sive and  valuable  ore  reserves.63 

As  a  result  of  combinations,  the  manufacture  of  primary 
products  was  largely  transferred  to  a  relatively  few  large 
steel  companies,  chief  among  which  were  the  Carnegie,  Fed- 
eral Steel,  and  National  Steel  companies.  Likewise,  the 
manufacture  of  many  finished  products  was  largely  centered 
in  another  group  of  consolidations,  each  of  which,  with  few 
exceptions,  obtained  a  large  degree  of  monopoly  control 
in  its  respective  lines.  Chief  among  these  were  the  Shelby 
Steel  Tube  Company  and  the  six  members  of  the  "secondary 
group" — the  American  Steel  and  Wire,  American  Tin  Plate, 
American  Steel  Hoop,  American  Sheet  Steel,  National  Tube, 
and  American  Bridge  companies.  At  first  there  was  no 
direct  competition  between  the  two  groups.  The  manufac- 
turers of  finished  products  purchased  their  raw  materials 
from  the  manufacturers  of  primary  products.  This  balanced 
interdependence  of  the  two  groups  was  of  short  duration. 

One  of  the  distinguishing  features  of  the  period  was  the 
progress  of  integration  among  the  leading  concerns.  At 
first  the  manufacturers  of  primary  products  largely  con- 

61  Report  of  Bureau,  Part  I,  p.  166. 
"Ibid.,  p.  179. 
63  Ibid.,  p.  96. 


230  Trust  Dissolution 

fined  their  integration  policy  to  the  acquisition  and  operation 
of  coal,  ore,  and  transportation  properties  and  remained 
dependent  for  the  sale  of  their  products  upon  the  manufac- 
turers of  finished  products.  But  the  manufacturers  of  fin- 
ished products  also  adopted  the  policy  of  integration.  In- 
stead of  depending  upon  the  primary  group  for  their  raw 
materials  they  began  to  reach  back  and  link  up  the  first 
processes  of  steel  production.  They  began  to  acquire  coal 
and  ore  properties  and  to  produce  their  own  crude  steel. 
This  brought  about  a  crucial  situation.  If  the  manufac- 
turers of  the  finished  products  produced  their  own  raw  ma- 
terial, the  manufacturers  of  primary  products  which  had 
greatly  enlarged  their  capacity,  and  were  thus  threatened 
with  the  loss  of  their  best  customers,  would  be  compelled  to 
elaborate  their  primary  products  into  more  finished  materi- 
als. This  threat  of  direct  and  severe  competition  between 
the  two  groups  unsettled  the  whole  industry.  It  meant  an 
enormous  enlargement  of  the  productive  capacity,  a  capacity 
that  would  be  almost  sure  to  exceed  for  a  while  the  normal 
consuming  power  of  the  country.  It  meant  the  breaking 
down  of  the  extremely  profitable  quasi-monopolies  already 
established  in  the  production  of  certain  products. 

This  was  the  situation  in  1900.  The  "battle  of  the 
giants"  seemed  near.  It  was  evident  that  the  Carnegie 
Company  was  best  fitted  to  meet  a  price  war.  This  com- 
pany had  an  old-established  business  and  the  most  modern 
and  efficient  plants.  It  excelled  in  technical  and  commercial 
organization.  Its  securities  were  not  in  the  market  and 
its  financial  credit  was  equal  to  any  emergency,  A  slack- 
ened activity  in  the  steel  trade  made  the  situation  more 
acute.  The  crisis  was  precipitated  early  in  1900  by  the 
aggressive  policy  of  the  Carnegie  Company  which  announced 
its  intention  of  building  plants  for  the  manufacture  of  sev- 
eral lines  of  finished  products.  The  way  to  a  peaceful  solu- 
tion was  determined  largely  by  the  financial  conditions  of 
the  several  companies. 

Financially  there  were  four  important  groups — the  Mor- 
gan, Moore,  Carnegie,  and  Rockefeller  interests.  The  Mor- 
gan group  included  the  Federal  Steel,  National  Tube,  and 


Important  Cases  Awaiting  Supreme  Court  Decisions 

American  Bridge  companies.  While  this  group  had  good 
financial  support,  the  Morgan  interests  were  at  this  time 
extensively  committed  in  other  lines  of  business  and  did  not 
want  war  in  the  steel  industry.  The  Carnegie  and  Rocke- 
feller interests  were  ready  for  any  emergency.  But  the 
Moore  companies, — the  National  Steel,  American  Tin  Plate, 
American  Sheet  Steel,  and  American  Steel  Hoop — were  very 
heavily  overcapitalized  and  suffered  from  speculative  back- 
ing. The  securities  of  these  companies  would  have  declined 
greatly  in  a  steel  trade  war.  Likewise,  the  American  Steel 
and  Wire  Company  had  no  special  backing  support.  Hence, 
it  was  to  the  interest  of  most  of  these  groups  to  avert  a  se- 
vere war  in  the  industry  by  a  merger  of  their  big  consolida- 
tions. This  would  keep  up  the  large  profits  and  would  even 
stimulate  speculative  activity  in  the  steel  securities  in  the 
further  interest  of  these  promoters.  Complete  integration 
would  make  a  "bull"  argument.  But  no  merger  could  be  suc- 
cessful without  including  the  Carnegie  Company.  Carnegie 
was  willing  to  sell  his  interests  at  this  time  and  he  set  his 
own  price.  Following  brief  negotiations  conducted  by  J.  P. 
Morgan  and  Company,  the  United  States  Steel  Corporation 
was  organized  in  April,  1901,64  and  it  acquired  at  the  time 
of  organization  or  shortly  thereafter  the  following  concerns : 
Carnegie,  Federal  Steel,  American  Steel  and  Wire,  National 
Steel,  National  Tube,  American  Steel  Hoop,  American  Tin 
Plate,  American  Bridge,  American  Sheet  Steel,  Lake  Supe- 
rior Consolidated  Iron  Mines,  Shelby  Steel  Tube,  and  Besse- 
mer Steamship  companies.  These  represented  about  180 
distinct  concerns.65 

The  immediate  cause  of  the  consolidation  was  to  prevent 
the  threatened  competitive  struggle  in  the  industry.  The 
promoters  tried  to  justify  the  organization  on  the  grounds 
of  economies  of  integration,  but  it  is  doubtful  if  this  con- 
sideration had  much  influence.  Many  of  the  units  entering 
the  corporation  were  operating  extensively  and  were  suffi- 
ciently integrated  to  secure  practically  all  the  advantages 
therefrom.  The  profits  to  be  derived  from  the  sale  of  in- 

84  Report  of  Bureau,  Part  I,  pp.  98  et  seq. 
66  Ibid.,  p.  106-7,  table  3. 


Trust  Dissolution 

flated  securities  was  undoubtedly  an  important  consideration. 
Most  of  the  previous  consolidations  had  brought  enormous 
returns  to  the  promoters.66  Here  was  an  opportunity  to 
do  things  on  a  larger  scale.  Prosperity  was  increasing  and 
the  demand  for  securities  unabated. 

For  the  properties  received  at  its  formation  and  shortly 
thereafter,  plus  $25,003,000  cash  capital,  together  with 
underwriting  services,  the  Steel  Corporation  issued  the  fol- 
lowing securities :  67 

Preferred  stock $510,205,743 

Common  stock 508,227,394 

Bonds 303,450,000 


Total $1,321,883,137 

Add: 

Underlying  bonds  of  constituent  companies..  59,091,657 

Mortgage  and  purchase  money  obligation. .  .  21,872,023 

Grand  total $1,402,846,817 

Of  these  securities,  the  Carnegie  Company  received  the  en- 
tire issue  of  bonds  and  $188,556,160  of  stock  of  which 
more  than  half  was  preferred,  making  $492,006,160  in  all. 
Most  of  the  companies  had  been  previously  overcapitalized, 
but  the  Steel  Corporation  increased  the  combined  capitaliza- 
tion of  the  constituent  companies  by  47  percent.68  The  in- 
vestment of  the  Corporation  by  departments  was  computed 
by  the  Bureau  of  Corporations  as  follows :  69 

Ore  property $100,000,000 

Manufacturing  plants  including  furnaces 250,000,000 

Railroad,  steamship  and  dock  property 91,500,000 

Coal  and  coke  property 80,000,000 

Natural  gas  property 20,000,000 

Limestone  property 4,000,000 

Cash  and  cash  assets .  .                                            .  .  136,500,000 


Total $682,000,000 

66  Report  of  Bureau,  Part  I,  pp.  176-9. 
« Ibid,,  p.  112. 
""Ibid.,  p.  113. 
-Ibid.,  p.  36. 


Important  Cases  Awaiting  Supreme  Court  Decisions     233 

Although  the  Bureau  believed  its  valuation  to  be  liberal 
in  every  case,  the  Corporation  claimed  a  valuation  of  $1,- 
457,000,000,  or  more  than  double.70  The  ore  properties 
were  valued  by  the  Corporation  at  $700,000,000,  while  the 
Bureau  claimed  $100,000,000  was  very  liberal.71  While  the 
Corporation  valued  them  at  $700,000,000  to  justify  its 
capitalization,  the  valuation  for  purposes  of  taxation  was 
probably  much  below  $40,000,000.72  The  Corporation  also 
included  a  "merger  value,"  claiming  that  the  combination 
and  co-ordination  of  the  properties  increased  their  value, 
but  since  such  value  was  almost  wholly  due  to  increased  earn- 
ings resulting  from  the  restriction  of  competition  the  Bu- 
reau almost  wholly  excluded  it. 

The  enormous  commission  paid  to  the  underwriting  syn- 
dicate was  another  indication  of  excessive  capitalization. 
For  $25,000,000  in  cash,  together  with  services,  the  syndi- 
cate received  from  the  Corporation  $130,000,000  of  its  par 
value  stock,  half  preferred,  on  which  the  syndicate  realized 
a  net  profit  of  $62,500,000.73  The  Bureau  claimed  that  the 
entire  issue  of  common  stock  of  $508,000,000  represented 
nothing  but  "water"  and  that  about  $200,000,000  of  the 
preferred  stock  was  unprotected  by  tangible  assets.74 

The  Corporation  did  not  secure  a  monopoly  of  the  iron 
and  steel  industry  as  a  whole.  At  its  organization  it  secured 
control  of  about  60  percent  of  the  steel  business  of  the  coun- 
try.75 Its  real  position  was  stronger  than  indicated  by  this 
figure  because  a  large  part  of  the  production  of  "outside" 
companies  did  not  involve  competition  with  the  Corporation. 
In  a  few  branches  the  control  of  the  Corporation  was  nearly 
complete  at  first,  but  in  others  there  was  competition  from 
the  beginning.  Some  of  the  outside  companies  were  strong, 
efficient,  and  expanding  concerns. 

At  first,  the  Corporation  made  no  effort  to  acquire  its 
chief  competitors.  However,  near  the  close  of  1902  it  ac- 

70  Report  of  Bureau,  Part  I,  p.  36. 

"Ibid.,  pp.  35-6. 

» Ibid.,  p.  36. 

"Ibid.,  p.  38. 

» Ibid. 

"Ibid.,  p.  108. 


234  Trust  Dissolution 

quired  the  Union  Steel  Company  which  represented  a  merger 
of  a  former  company  of  the  same  name  and  the  Sharon  Steel 
Company.  Both  of  these  companies  had  strong  financial  sup- 
port and  were  very  aggressive  competitors.  Their  union 
had  scarcely  been  completed  when  the  Corporation  pur- 
chased the  combined  property  by  means  of  a  guaranteed 
bond  issue  of  $45,000,000.76  Two  years  later  the  Corpora.- 
tion  purchased  the  entire  capital  stock  of  the  Clairton  Steel 
Company  for  $13,710,565. 77  This  concern  had  carried  on 
extensive  operations  and  held  important  ore  and  coal  prop- 
erties, but  it  lacked  capital  and  at  the  time  of  purchase  was 
in  the  hands  of  a  receiver.  The  acquisition  of  several  minor 
companies  also  occurred  about  this  time.  The  most  impor- 
tant addition  occurred  in  1907  when  the  Corporation  pur- 
chased the  Tennessee  Coal,  Iron  and  Railroad  Company, 
which  was  dominant  in  the  southern  iron  and  steel  district 
and  had  extensive  manufacturing  and  transportation  prop- 
erties. Its  production  was  approximately  one-fifteenth  of 
that  of  the  entire  Steel  Corporation,  but  its  most  important 
assets  consisted  of  enormous  holdings  of  ore  and  coal  prop- 
erties. The  estimated  coal  deposits  of  the  company  ranged 
from  285,000,000  to  1,397,300,000  tons,  and  ore  deposits 
from  397,600,000  to  697,350,000  tons.78  This  property 
was  acquired  during  the  panic  of  1907  for  about  $49,000,- 
000. 79  The  transaction  gave  the  Corporation  control  of 
the  southern  iron  and  steel  district.  The  fact  that  the  Cor- 
poration leaders  sought  President  Roosevelt's  approval  is 
significant  in  showing  that  there  were  fears  as  to  the  legality 
of  the  acquisition.80 

The  Corporation  made  many  other  additions  to  its  enor- 
mous holdings  of  ore  and  coal  properties.  Many  of  these 
were  secured  on  a  royalty  basis  without  the  need  of  much 
cash.  The  most  important  ore  lease,  negotiated  in  1911, 
covered  60  percent  of  the  ore  properties  held  by  the  Great 
Northern  Railway  system.  The  ore  deposits  involved  in  this 

"Report  of  Bureau,  Part  I,  p.  254. 

"  Ibid.,  p.  287. 

78  Ibid.,  p.  257. 

TB  Ibid.,  p.  290. 

80  Brief  for  the  United  States,  Part  II,  pp.  90-1. 


Important  Cases  Awaiting  Supreme  Court  Decisions     235 

lease  were  generally  estimated  at  from  400,000,000  to  500,- 
000,000  tons  while  more  liberal  estimates  nearly  doubled 
these  figures.81  The  two  other  ore  leases  gave  control  of 
deposits  estimated  at  70,000,000  and  100,000,000  tons,  re- 
spectively. In  a  similar  way  the  Corporation  added  to  its 
large  holdings  of  coal  and  coke  properties.  In  1901  it 
leased  50,000  acres  of  desirable  coal  lands.  In  its  prelimi- 
nary report  for  that  year  it  was  estimated  that  the  corpora- 
tion controlled  "a  sufficient  quantity  of  the  best  and  cheapest 
coking  coal  to  provide,  on  the  basis  of  present  consumption, 
for  the  necessities  of  all  the  furnaces  of  these  companies  dur- 
ing the  next  sixty  years."  82  The  enormous  coal  and  coke 
properties  acquired  through  the  purchase  of  the  Union 
Steel,  Clairton  Steel,  and  Tennessee  Coal,  Iron  and  Railroad 
companies,  as  noted  above,  came  after  this  year.  In  addi- 
tion, 2,326  acres  of  coke  land  were  secured  in  1905,  640  acres 
in  1906,  500  in  1907,  and  extensive  coal  properties  in  Illi- 
nois and  Indiana  in  1909-10.  In  1911  7,000  acres  of  im- 
proved and  about  9,000  of  unimproved  coal  land  were  ac- 
quired for  $17,800,000.83 

During  the  first  decade  the  capacity  of  the  Corporation 
was  more  than  doubled.84  This  increase  was  due  far  more  to 
new  construction  and  additions  than  to  the  acquisition  of 
competing  concerns.  The  most  important  new  construction 
was  the  well  known  Gary  plant.  This  immense  plant  with 
the  most  modern  equipment,  together  with  real  estate  and 
railroad  investment  at  this  place,  had  cost,  to  the  close  of 
1910,  almost  $70,000,000.85  Other  new  construction  in- 
volved an  expenditure  of  about  $10,000,000  for  tube  plants, 
several  millions  for  beginning  the  erection  of  a  large  plant  at 
Duluth,  and  a  considerable  sum  for  cement  works  controlled 
through  the  Universal  Portland  Cement  Company.  The  ca- 
pacity for  cement  production  at  the  close  of  1910  was  about 
8,050,000  barrels,  not  including  new  works  under  construc- 
tion which  would  increase  the  capacity  by  one-half.80  The 

81  Report  of  Bureau,  Part  I,  pp.  260-3. 

82  Ibid.,  p.  263. 

83  Ibid.,  p.  264. 

84  Ibid.,  p.  269. 

85  Ibid.,  p.  265. 

86  Ibid.,  p.   269. 


236  Trust  Dissolution 

development  of  the  cement  business  was  due  to  the  increasing 
use  of  cement  for  construction  which  required  structural 
steel.  The  Corporation  also  made  a  great  number  of  less 
important  extensions  and  improvements  at  various  places, 
the  aggregate  cost  of  which  was  very  large.  Large  invest- 
ments were  also  made  in  transportation  properties. 

The  various  acquisitions,  new  construction,  and  addi- 
tions, as  noted,  greatly  increased  the  investment  of  the  Cor- 
poration. The  increase  in  the  tangible  property  by  depart- 
ments was  as  follows  :  87 

Total  Total 

Investment  Investment 

Description  in  1901  Dec.  31,  1910 

Fixed  property  (exclusive  of  Gary 
plant  and  Tennessee  Coal, 
Iron  &  R.  R.  Co.) : 

Manufacturing $250,000,000  $383,338,905 

Iron  ore .  . 100,000,000  134,145,450 

Coal  and  coke 80,000,000  98,425,982 

Transportation 91,500,000  142,166,405 

Miscellaneous 24,000,000  26,741,012 

Other  assets: 

Deferred  charges 2,088,027  15,331,705 

Investments 241,030  2,369,394 

Sinking  fund 239  16,067,905 

Net  current  assets . 134,224,089  235,907,633 

Gary  plant,  including  city  and 

railway  property 69,978,695 

Tennessee  Coal,  Iron  and  Rail- 
road Company 59,455,358 

Sundry  adjustments 3,063,594 


Total $682,053,358   $1,186,982,038 

This  increase  of  $504,928,653  in  tangible  property  was 
accompanied  by  an  increase  of  only  about  $66,000,000  in  the 
capitalization.  As  a  result  the  "water"  and  intangible 
values,  which  exceeded  the  value  of  the  tangible  property  in 
1901,  decreased  from  about  $720,000,000  to  nearly  $281,- 

87  Reports  of  Bureau,  Part  I,  p.  311. 


Important  Cases  Awaiting  Supreme  Court  Decisions     237 

()00,000.88  The  Corporation  in  1910  claimed  a  total  valua- 
tion which  exceeded  the  capitalization  of  $1,468,000,000  by 
about  $225,000,000,  the  latter  amount  appearing  on  the 
mlance  sheet  in  the  form  of  surplus  and  reserves.89 

The  position  of  the  Corporation  in  the  steel  industry  is 
?urther  shown  by  its  percentage  of  the  total  output  of  vari- 
ous steel  products.  Although  the  Corporation  greatly  in- 
creased the  volume  of  its  business  through  the  acquisition  of 
competitors,  new  construction,  enlargements,  and  modern 
iquipment,  it  did  not  increase  its  percentage  of  the  total 
output  from  1901  to  1912,  and  in  the  case  of  many  finished 
products  its  proportion  declines.  In  the  production  of  the 
•ruder  materials  the  Corporation  maintained  its  relative 
position  as  is  shown  by  the  accompanying  table. 

The  table  shows  that  the  Corporation  increased  slightly 
its  percentage  of  the  total  production  of  iron  ore.  Its  pro- 
Dortion  averaged  about  44.5  percent  with  remarkably  slight 
annual  fluctuations.  However,  the  real  position  of  the  Cor- 
poration is  not  shown  by  these  figures  which  are  based  upon 
the  total  output  of  the  country  because  most  of  the  ore  used 
in  the  steel  industry  comes  from  the  lake  region  and  the  Cor- 
poration controlled  about  56  percent  of  the  ore  shipped 
from  this  region  from  1901-1910.  Of  the  ore  produced  by 
the  Corporation  in  1910,  92  percent  came  from  the  lake 
region,  and  in  1912  it  produced  over  70  percent  of  the  46,- 
368,878  tons  produced  in  this  district.90  In  the  production 
of  coke  the  Corporation's  proportion  slightly  declined,  but 
here  again  the  percentage  of  the  total  output  is  misleading 
because  a  large  amount  of  coke  is  not  suited  to  steel  making 
and  the  Corporation's  holdings  included  the  best  coking  coal. 
The  table  also  shows  that  the  Corporation's  percentage  of 
the  pig  iron  output  fluctuated  very  little  but  tended  to  in- 
crease, reaching  47.7  percent  in  1912. 

It  was  chiefly  in  the  production  of  crude  and  finished  steel 
that  the  Corporation  failed  to  hold  its  relative  position 
against  competitors.  This  is  clearly  brought  out  in  the 

88  Report  of  Bureau,  Part  I,  p.  324. 

89  Ibid.,  pp.  324-5. 

90  Brief  for  the  United  States,  Part  I,  p.  379. 


Trust  Dissolution 


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Important  Cases  Awaiting  Supreme  Court  Decisions     239 

table.  The  Corporation's  proportion  of  the  output  of  steel 
ingots  and  castings,  which  is  the  best  single  index  of  its  posi- 
tion in  steel  manufacturing,  declined  steadily  from  65.7  to 

54.1  percent.     This  plainly  shows  the  effect  of  the  extended 
operations  and  aggressiveness  of  competitors.     In  the  case 
of  steel  rails  the  percentage  declined  from  67.6  in  1902  to 

50.2  in  1906,  but  rose  steadily  again  to  '58.9  percent  in  1910. 
It  is  well  to  remember  that  steel  rails  represent  the  most  im- 
portant branch  in  the  steel  industry,  at  least  so  far  as  ton- 
nage is  concerned.     In  all  the  remaining  classes  of  products 
listed  in  the  table  the  Corporation's  proportion  had  declined. 
These  include  lines  of  production  in  which  the  Corporation 
had  a  large  degree  of  monopoly  control  in  1901.     Its  per- 
centage of  the  total  of  all  finished  rolled  products,  which  ex- 
cludes pig  iron  and  steel  ingots  and  castings,  fluctuated  very 
little  from  50  percent  and  declined  none  after  1903. 

From  the  above  statistics  two  important  conclusions  may 
be  drawn.  First,  the  Corporation  has  easily  maintained  its 
position  with  respect  to  the  cruder  materials — ore,  coke,  and 
pig  iron.  Second,  in  the  case  of  crude  steel  and  most  leading 
steel  products,  except  steel  rails,  it  has  not  kept  pace  with 
its  competitors.  Thus,  the  largest  and  one  of  the  best 
financed  corporations  of  the  world  with  all  the  advantages 
and  economies  of  almost  complete  integration  could  not  or 
did  not  retain  its  proportion  of  production  and  manufacture, 
although  it  always  held  more  than  one-half  of  the  control 
in  the  industry  as  a  whole  and  seemed  to  be  holding  its  rela- 
tive position  during  the  last  years  shown  in  the  table.  Hence, 
one  must  look  for  evidence  of  monopoly  in  other  than  the 
production  and  manufacturing  branches  of  the  steel  industry. 

Upon  the  basis  of  capacity  and  the  location  of  its  plants 
the  Corporation  had  a  stronger  position  than  its  proportion 
of  the  production  indicated.  The  Corporation  produced  less 
than  its  proportion  of  the  output  during  periods  of  depres- 
sion in  order  to  maintain  prices.  During  a  period  of  keen 
competition  the  Corporation  could  increase  its  proportT6n 
of  the  total  output  and  perhaps  permanently  eliminate  some 
of  its  weaker  competitors.  The  Corporation  also  had  dis- 
tinct advantages  over  its  competitors  in  the  distribution  of 


240  Trust  Dissolution 

its  plants.  Since  it  was  dominant  in  nearly  every  important 
iron  and  steel  district,  the  location  of  its  plants  gave  an 
advantage  with  respect  to  transportation  costs,  both  for  raw 
materials  and  finished  products.  It  also  had  a  large  ad- 
vantage over  its  competitors  through  the  ownership  of  trans- 
portation facilities.  The  tangible  value  of  its  transporta- 
tion properties  was  over  $142,000,000  in  1910,  while  no 
competitor  had  any  large  railroad  property.  It  had  the  two 
leading  railroads  in  the  lake  ore  region  and  always  controlled 
more  than  half  of  the  ore  shipments  from  this  region.93 
The  earnings  from  these  roads,  which  arise  chiefly  from  ore 
transportation,  have  been  enormous.  Though  the  cost  of 
ore  transportation  has  greatly  declined,  and  the  ratio  of 
operating  expenses  to  gross  earnings  is  exceptionally  low 
for  these  roads,  the  freight  rates  have  not  been  lowered.94 
This  not  only  brings  large  profits  but  also  puts  a  burden 
upon  competitors  who  are  forced  to  ship  over  the  roads. 
The  Corporation  also  enjoyed  important  advantages  through 
the  ownership  of  the  Elgin,  Joliet  and  Eastern  Railway  and 
the  Bessemer  and  Lake  Erie.  In  water  transportation  it  has 
large  interests  but  was  not  so  powerful. 

While  the  Corporation  did  not  secure  a  monopoly  of 
coking  coal  property,  it  did  secure  a  substantial  monopoly 
of  the  best  coking  coal,  the  famous  Connellsville  deposit.  Its 
proportion  of  the  total  production,  which  was  about  one- 
third,  does  not  indicate  its  position  with  respect  either  to 
ownership  or  production  of  coal  and  coke  for  the  steel  in- 
dustry because  a  large  part  of  the  total  production  is  used 
for  other  purposes.95 

Another  evidence  indicating  monopoly  on  the  part  of  the 
Corporation  is  in  its  ownership  of  ore  properties.  Its  per- 
centage of  the  ore  production,  which  was  47.9  in  1912,  does 
not  indicate  the  extent  of  its  ownership  nor  control  which 
covers  ores  not  needed  for  years  to  come.  It  is  hard  to  de- 
termine the  amount  of  ore  controlled  because  no  one  knows 
the  full  extent  of  hidden  ore  in  any  known  field  nor  when 

93  See  p.  238. 

94  Report  of  Bureau,  Part  I,  pp.  374r5. 
M..Seejp.  238. 


Important  Cases  Awaiting  Supreme  Court  Decisions     241 

new  ore  fields  may  be  discovered.  But  of  the  commercially 
available  ores  of  the  country  in  1910  the  Corporation's  hold- 
ings greatly  exceeded  the  combined  holdings  of  all  the  other 
steel  and  iron  interests,  and  were  conservatively  estimated  at 
not  less  than  2,500,000,000  tons.96  Moreover,  the  bulk 
of  its  holdings  are  of  the  best  ores,  those  of  the  lake  region, 
which  form  the  basis  of  the  steel  production  of  the  country. 
The  Corporation  controlled  about  75  percent  of  the  ore  of 
this  district  through  ownership  and  most  of  the  balance  by 
lease.97  Its  dominant  position  was  further  strengthened  by 
the  control  of  ore  transportation  from  this  district. 

The  Corporation  monopolized  the  export  trade.98  Prior 
to  1901  steel  exports  were  increasing  rapidly,  reaching  over 
a  million  tons  in  1900,  nearly  all  of  which  were  furnished 
by  the  companies  later  acquired  by  the  trust.  Following 
the  formation  of  the  Corporation  the  export  trade  declined 
sharply  for  several  years.  From  1904  to  1910  the  annual 
volume  of  the  trade  remained  near  a  million  tons,  but  it  be- 
gan to  increase  rapidly  in  1911  and  exceeded  two  million  tons 
in  1912.  The  Corporation  controlled  upwards  of  90  per- 
cent of  the  export  trade  from  1901  to  1911,  but  this  had 
been  largely  built  up  by  the  separate  companies  prior  to 
1901  and  it  is  probable  that  the  export  trade  would  have 
been  fully  as  large  if  the  Corporation  had  never  been  formed. 
Moreover,  from  1904  to  1911  the  Corporation  sold  most  of 
its  heavier  steel  products  abroad  at  prices  decidedly  lower 
than  in  the  domestic  markets.99  For  several  years  the  dif- 
ference on  steel  rails,  which  make  up  a  large  part  of  the 
tonnage,  was  over  $6  a  ton  and  for  several  years  over  $4. 
In  1904  most  of  the  important  exports  were  sold  at  average 
prices  ranging  from  $4  to  nearly  $9  a  ton  below  domestic 
prices.100 

The  Corporation  was  more  successful  in  preventing  price 
cutting  than  it  was  in  restricting  competition  in  production. 
Prices  were  advanced  while  plans  for  the  Corporations  were 

••Report  of  Bureau,  Part  I,  p.  381. 

"Ibid.,  pp.  380-1. 

M  Brief  for  the  United  States,  Part  I,  pp.  385-407. 

99  Ibid.,  p.  399. 

**  Ibid.,  p.  404. 


Trust  Dissolution 

being  arranged  and  were  raised  again  soon  after  the  organi- 
zation was  completed.101  Not  content  to  rely  on  the  power 
derived  from  combination,  the  Corporation  interests  resort- 
ed to  various  devices  to  restrict  competition  in  price.  Among 
these  were  pools,  agreements,  contracts,  and  understandings. 
From  1900-1905  an  association  of  manufacturers  represent- 
ing 75  percent  of  the  steel  plate  output  held  meetings,  usu- 
ally monthly,  under  an  agreement  to  fix  prices,  apportion 
sales,  and  maintain  fixed  rates.102  A  similar  association 
existed  up  to  1905  among  structural  steel  manufacturers 
representing  90  percent  of  the  output.103  Steel  plate  and 
structural  steel  made  up  about  20  percent  of  all  steel  prod- 
ucts. These  associations  were  able  to  raise  prices  and  keep 
them  constant  for  long  periods.  Nine  similar  associations 
existed  among  manufacturers  of  boiler  tubes,  steel  shafting 
and  pulley  wheels,  horseshoes,  copper  wire  and  rods,  wire 
ropes,  underground  power  cables,  rubber  insulated  and  lead 
encased  wire,  weatherproof  and  magnetic  wire,  and  rubber 
covered  wire.104  Some  of  these  pools  continued  until  the 
Government  filed  its  suit,  but  many  were  abandoned  about 
1904  when  the  Bureau  began  its  investigation  in  the  indus- 
try. After  1904  price  control  was  secured  through  trade 
meetings  attended  by  the  representatives  of  the  same  organi- 
zations which  had  been  members  of  the  pools.  Such  trade 
meetings  were  frequent  until  1907  when  they  were  super- 
seded by  a  new  method  of  securing  co-operation  for  the 
control  of  prices. 

The  control  of  price  is  shown  also  with  steel  rails.  Soon 
after  the  formation  of  the  Corporation,  the  price  of  stand- 
ard Bessemer  rails  was  advanced  to  $28  per  ton  at  which 
price  they  remained  constant  for  about  fifteen  years,  re- 
gardless of  the  cost  of  production  or  demand.105  The  steel 
tonnage  was  apportioned  and  the  price  maintained  through 
an  understanding  among  the  rail  manufacturers.  The  Cor- 
poration declared  that  the  fixed  price  was  fair  to  the  public 

1W  Brief  for  the  United  States,  Part  II,  pp.  442-5. 

102  Ibid.,  pp.  119-25. 

103  Ibid. 

104  Ibid.,  pp.    253-278. 
108  Ibid.,  p.  133. 


Important  Cases  Awaiting  Supreme  Court  Decisions 

and  that  it  gave  stability  to  industry  since  the  price  was  not 
raised  in  times  of  prosperity  nor  lowered  in  times  of  depres- 
sion. But  considering  the  long  run  demand  the  fixed  price 
was  the  maximum  price,  and  it  cost  the  public  more  than  if 
prices  rose  and  fell  with  the  demand,  for  the  bulk  of  the 
buying  would  take  place  when  the  price  was  low.  The  Cor- 
poration could  well  afford  to  shut  down  in  a  time  of  depres- 
sion and  reduce  the  number  of  employees.  Decreased  pro- 
duction for  the  purpose  of  maintaining  high  prices  is  not 
advantageous  to  either  labor  or  the  public,  especially  in 
periods  of  depression. 

After  1907,  the  control  of  prices  and  output  was  se- 
cured through  numerous  general  meetings  of  the  steel  manu- 
facturers, known  as  the  "Gary  dinners,"  and  a  system  of 
committees  established  in  connection  with  these  dinners.  The 
first  Gary  dinner  took  place  in  New  York  in  1907,  at  which 
were  present  manufacturers  who  controlled  from  90  to  95 
percent  of  the  iron  and  steel  trade.106  In  that  year  de- 
moralization of  the  business  was  impending.  As  a  result  of 
the  meeting  a  general  committee  headed  by  Mr.  Gary,  and 
nine  sub-committees  were  appointed.  Each  of  the  sub-com- 
mittees, which  were  appointed  to  deal  with  one  or  two  prin- 
cipal lines  of  steel  products,  held  meetings  between  the  Gary 
dinners  and  the  chairman  was  always  available.  The  Cor- 
poration was  represented  on  every  committee  along  with  its 
competitors  whose  co-operation  was  sought  in  controlling 
prices.  The  committee  arrangement  reached  nearly  all  the 
manufacturers  of  iron  and  steel  products,  and  made  pos- 
sible a  common  understanding  and  co-operation  with  out- 
side companies  to  maintain  one  market  price  for  the  leading 
steel  products.  The  Corporation,  which  controlled  the 
larger  part  of  the  output  of  most  of  these  products,  set  the 
price  and  was  able  to  bring  about  the  concerted  action  of 
most  of  its  competitors.  At  these  meetings  or  dinners  no 
formal  agreements  were  made,  but  those  present  made  "dec- 
larations of  purpose"  107  as  to  prices  at  which  each  pro- 
posed to  sell.  Each  was  expected  to  hold  to  such  proposed 

106  Brief  for  the  United  States,  Part  II,  p.  147. 
12*223   Fed.   Rep.,  174. 


244  Trust  Dissolution 

prices,  or  if  he  departed  from  them,  was  expected  to  notify 
his  committee  or  dinner  associates.  They  were  informal 
pools,  the  binding  force  of  which  were  verbal  agreements  and 
the  fear  of  competition.  The  prices  agreed  upon  at  the  Gary 
dinners  were  published  in  the  trade  journals  and  undoubtedly 
the  publication  of  these  prices  helped  to  strengthen  the 
force  of  the  understanding. 

From  November  1907  to  February  1909  the  Corporation 
was  very  successful  in  fixing  and  maintaining  prices.108 
Moreover,  these  were  boom  prices  even  though  depression  was 
in  the  country.  In  1909  the  price  understandings  were  dis- 
continued and  in  February  the  Corporation  declared  an  open 
market  for  nearly  all  the  leading  steel  products,  except  steel 
rails.10  The  Gary  dinners  were  discontinued  and  the  im- 
mediate result  was  much  lower  prices  and  greatly  increased 
production.  About  May  prices  began  to  rise  again.  In 
October  the  Gary  dinners  were  resumed  and  prices  were 
soon  raised  to  the  old  level  and  took  on  their  former  stability. 
The  dinners  continued  to  be  held  until  January  1911,  after 
which  time  there  was  decline  and  fluctuation  in  prices  and 
greatly  increased  production.110  In  October  the  Govern- 
ment filed  its  suit  against  the  Corporation.  The  boast  of 
giving  stability  to  the  market  and  preventing  extreme  fluc- 
tuations is  somewhat  of  an  admission  that  prices  were  arti- 
ficially controlled. 

The  Corporation  followed  other  practices  designed  to 
control  trade  and  prices,  but  it  should  be  noted  that  the  evi- 
dence was  comparatively  free  of  complaint  on  the  part  of 
competitors  for  the  Corporation  sought  the  co-operation  of 
its  competitors  to  maintain  prices,  and  being  dominant  in 
most  branches  of  the  industry,  it  was  able  to  secure  concerted 
action.  Local  price  cutting  and  railroad  rebates  which  were 
such  important  factors  in  many  combinations  are  scarcely 
mentioned.  However,  there  were  other  undesirable  practices. 
The  acquisition  of  competitors  has  been  sufficiently  consid- 
ered. Price  cutting  for  the  purpose  of  driving  out  com- 

108  Brief  for  the  United  States,  Part  II,  pp.  238-242. 

109  Ibid.,  p.   200. 

110  223  Fed.  Rep.  81. 


Important  Cases  Awaiting  Supreme  Court  Decisions     245 

petitors,  while  unusual,  was  practiced  in  some  cases.111  Re- 
bates to  control  the  trade  of  jobbers  were  at  times  put  into 
effect.112  The  Corporation  also  maintained  excessive  prices 
on  ore  from  the  lake  region  and  it  sometimes  purchased  pig 
iron  in  the  market  for  the  purpose  of  keeping  up  the  price 
and  thus  regulating  the  price  of  finished  products.  Another 
effective  practice  was  the  use  of  exclusive  and  preferential 
contracts.  Long-term  contracts  were  made  with  many  of 
the  largest  purchasers  of  steel  products  under  the  terms  of 
which  the  latter  agreed  to  purchase  all,  or  nearly  all,  of 
their  steel  products  from  the  Corporation  at  a  preferential 
rate.  In  this  way  the  trade  of  many  of  the  best  customers 
was  held  even  up  to  the  filing  of  the  Government's  suit.113 
These  preferential  rates  ranged  as  much  as  $6  per  ton  be- 
low the  prevailing  rates.  The  Corporation  also  wielded  a 
tremendous  influence  through  its  system  of  interlocking 
directorates,  which  extended  to  almost  all  the  great  com- 
mercial and  financial  concerns  in  the  country.11  It  is  im- 
possible to  measure  the  quiet  and  constantly  active  influence 
exerted  in  this  manner.  In  1911  directors  of  the  Corpora- 
tion were  represented  on  the  boards  of  sixty-two  railroad 
companies,  and  these  companies  were,  of  course,  large  pur- 
chasers of  steel  products.115 

The  dominant  position  of  the  Corporation  was  further 
shown  by  its  profits.  The  rates  of  profit  upon  the  real  in- 
vestment or  tangible  property  of  the  Corporation  were :  13 


1901 

14 

8 

1904 

.  7. 

fi 

1908  

7 

8 

1902 

15 

q 

1905 

12 

q 

1909 

...10 

5 

1903 

11 

7 

1906 

...  15  . 

1 

1910  

...  .10 

7 

1907.. 

..14. 

1 

Up  to  the  close  of  1910,  the  average  rate  of  profit  was 
12  percent.  The  highest  rate  was  reached  in  1902,  which 
was  the  first  full  year.  With  the  exceptions  of  1904  and 

^  Brief  for  the  United  States,  Part  II,  pp.  353-4. 

113  Ibid.,  p.   337. 

™  Ibid.,  pp.  340-7. 

114  Ibid.,  pp.    285-95. 

115  Ibid.,  p.  287. 

^Report  of  Bureau,  Part  I,  p.  342. 


246  Tmst  Dissolution 

1908,  years  of  pronounced  depression,  the  rate  was  uniformly 
high,  never  falling  below  10.5  percent.  Even  in  these  years 
the  return  of  7.6  and  7.8  percent  was  very  reasonable.  An 
average  return  of  12  percent  on  an  investment  exceeding  a 
billion  dollars  and  representing  over  half  of  the  entire  steel 
business  of  the  country,  as  well  as  iron-ore  mining,  is  far 
more  significant  than  a  similar  return  would  be  for  a  smaller 
concern  whose  investment  risks  are  much  greater.  The  12 
percent  return  also  covered  a  large  investment  in  unimproved 
ore  reserves  which  were  held  for  future  appreciation  and 
use.  If  the  earnings  were  based  upon  capitalization  instead 
of  real  investment  the  average  rate  of  return  would  be  7.8 
percent,  but  the  capitalization  was  at  first  more  than  double 
the  real  investment. 

When  the  profits  derived  from  particular  branches  of  the 
industry  are  considered,  monopolistic  control  is  more  evi- 
dent. The  profits  for  the  Corporation's  ore  companies  in 
1910  were  29  percent,  thus  showing  unreasonably  high  ore 
prices  which  placed  a  burden  upon  its  competitors.117  Like- 
wise, unusually  large  profits  were  obtained  from  the  trans- 
portation of  ore  from  the  lake  district.  The  returns  were 
also  high  on  the  production  of  pig  iron  and  heavy  steel  prod- 
ucts. In  1910  the  margins  between  the  total  net  costs  and 
average  proceeds  per  ton  were  $7.95  for  large  Bessemer 
billets,  $10.78  for  Bessemer  rails,  $8.71  for  plates,  and  $9.45 
for  structural  shapes,  giving  a  return  on  the  estimated  in- 
vestment of  15,  16.15,  10.5,  and  12  percent,  respectively.118 
Some  of  the  business  was  carried  on  at  a  rate  much  below 
12  percent,  and  some  perhaps  at  a  rate  that  could  not  have 
been  maintained  except  for  the  higher  returns  obtained  in 
the  more  monopolized  branches. 

The  Corporation's  securities  included  a  large  amount  of 
bonds  having  a  fixed  return,  usually  5  percent.  If  the  inter- 
est on  these  were  deducted,  the  return  upon  the  remaining 
investment  would  be  considerably  in  excess  of  12  percent. 
No  doubt  this  was  the  chief  motive  for  converting  a  large 
amount  of  preferred  stock  into  bonds  (1902-3).  The  total 

UT  Report  of  Bureau,  Part  III,  p.  10. 
09  Ibid. 


Important  Cases  Awaiting  Supreme  Court  Decisions     #47 

earnings  accruing  to  the  benefit  of  the  stockholders  from 
1901  to  1910  were  $816,430,854,  of  which  $393,951,787 
were  actually  paid  in  dividends.119  Of  the  latter  amount 
nearly  one-third  went  to  the  common  stockholders,  and  it 
should  be  remembered  that  the  common  stock  at  first  repre- 
sented nothing  but  water,  while  in  addition,  about  $200,000,- 
000  of  the  preferred  stock  had  no  tangible  property  back  of 
it.  At  the  close  of  1910  about  $440,000,000  of  earnings  had 
been  reinvested  in  the  business,  which  represented  an  equity 
accruing  to  the  benefit  of  the  stockholders.  All  of  it,  ex- 
cept in  so  far  as  the  preferred  stock  had  not  been  previous- 
ly covered  by  real  investment,  represented  a  contribution  to 
the  common  stockholders  in  addition  to  the  dividends  they 
received.  That  their  equity  increased  accordingly  is  con- 
firmed by  the  rise  in  the  market  price  of  the  common  stock 
which  sold  as  high  as  $91  in  1910,  and  reached  $129  in 
1916. 

In  conclusion  it  may  be  said  that  competition  in  the 
steel  industry  existed  as  to  production,  but  not  as  to  prices. 
Competition  as  to  price,  at  least  up  to  1911,  was  along 
levels  and  at  figures  agreed  upon  expressly  or  tacitly  by 
pool  agreements,  trade  meetings,  or  at  general  meetings, 
known  as  Gary  dinners.  In  so  far  as  the  Corporation  had  a 
monopolistic  control  in  the  industry  as  a  whole,  it  was 
chiefly  due  to  its  control  of  ore  and  ore  transportation. 

Public  protest  against  the  "Steel  Trust,"  which  had  been 
growing  stronger,  became  very  pronounced  when  the  Steel 
Corporation  was  formed  in  1901.  Although  the  Carnegie 
Company  and  many  other  consolidation  companies  formed 
between  1898  and  1900,  which  were  later  acquired  by  the 
Steel  Corporation,  were  made  the  subject  of  Congressional 
investigation,  no  attempt  to  dissolve  them  was  made  until 
1911.  The  Corporation  itself  was  also  the  subject  of  Con- 
gressional investigation  in  1905,  but  no  suit  was  filed  against 
it  until  1911,  although  the  Bureau  of  Corporations  had  been 
collecting  data  since  1905.  In  the  meanwhile  public  hos- 
tility subsided,  for  the  Steel  Corporation  did  not  antago- 

119  Report  of  Bureau,  Part  I,  p.  345. 


248  Trust  Dissolution 

nize  the  public  and  its  competitors  by  using  its  power  to 
crush  competitors.  It  rather  won  the  good  will  of  its  com- 
petitors by  co-operating  with  them  to  maintain  prices.  It 
frequently  made  public  its  policies  and  sought  official  ap- 
proval for  its  actions,  constantly  trying  to  justify  itself 
in  public  opinion.  As  a  result,  the  Steel  Corporation  came 
more  and  more  to  be  regarded  as  a  "good"  trust. 

The  earliest  antitrust  action  undertaken  in  this  field  was 
directed  against  certain  pooling  associations.  In  June 
1911,  separate  indictments  were  returned  against  nine  as- 
sociations engaged  in  the  manufacture  and  sale  of  bare  cop- 
per wire,  weatherproof  and  magnetic  wire,  rubber  covered 
wire,  fine  magnetic  wire,  horse  shoes,  underground  power 
cable,  telephone  cable,  lead  encased  rubber  insulated  cable 
and  wire  rope.120  The  various  defendants  of  these  associa- 
tions did  not  contest  the  action  of  the  Government  and 
fines  aggregating  approximately  $128,700  were  assessed.121 
In  October  1911,  the  Government  filed  a  dissolution  suit 
against  the  Steel  Corporation  and  its  chief  subsidiary  com- 
panies in  the  District  Court  of  New  Jersey.  The  effect  of 
this  action  was  noticeable  at  the  time  in  business  and  finan- 
cial circles,  especially  on  the  stock  exchange.  The  charges 
of  the  Government  included  over-capitalization,  control  of 
prices  and  attempts  at  monopoly  which  were  in  violation 
of  the  Act  of  1890.122  The  Government  asked  that  the  de- 
fendant companies  be  dissolved  and  enjoined  from  continuing 
certain  practices.  The  evidence  taken  in  the  case  filled 
thirty  volumes,  or  over  12,000  printed  pages.  In  June  1915, 
the  District  Court  rendered  a  unanimous  decree  completely 
acquitting  the  defendants.123  The  public  seemed  to  attach 
great  importance  to  this  decision  and  generally  regarded  the 
result  favorably. 

The  first  main  conclusion  of  the  Court  was  that  the 
Steel  Corporation  was  not  prejudicing  the  public  interests 
by  unduly  restricting  competition  or  obstructing  trade  in 
the  iron  and  steel  industry,  at  home  or  abroad,  at  the  time 

"°See  p.  242. 

laThe  Federal  Antitrust  Laws,  1916,  pp.  67-8. 

123  223   Fed.   Rep.   55-179. 

138  Ibid. 


Important  Cases  Awaiting  Supreme  Court  Decisions     249 

when  the  suit  was  filed  in  191 1.124  The  second  was  that 
the  Corporation,  in  view  of  the  intent  of  its  promoters  and 
the  inherent  nature  of  the  combination,  did  not  when  it  was 
formed  in  1901  prejudice  the  public  interest  by  unduly  re- 
stricting competition  or  obstructing  trade.  A  minority  of 
the  court  declared  that  the  organizers  of  the  Corporation 
intended  to  create  a  monopoly  and  to  restrain  trade,  and 
that  they  combined  with  others  to  monopolize  trade  within 
the  meaning  of  the  Sherman  law,  but  that  the  Corporation 
itself  neither  attempted  to  nor  possessed  the  power  to  carry 
out  successfully  the  unlawful  ends  intended  by  its  organiz- 
ers. It  held  also  that  the  Corporation  had  unlawfully  com- 
bined with  others  to  restrain  trade  by  controlling  prices.125 
The  fact  that  the  corporation  was  not  holding  its  proportion 
of  the  growing  trade  against  its  competitors  and  was  not 
using  oppressive  methods  against  them  seemed  to  be  the  basis 
for  the  conclusion  that  competition  was  not  unduly  restrict- 
ed. The  Court  refused  to  consider  mere  bigness  or  size,  hold- 
ing that  no  size  is  forbidden  by  law  so  long  as  it  was  accom- 
plished without  undue  restraint  or  obstruction  of  trade. 
Combination  and  co-operation  in  business  was  not  con- 
demned except  where  there  was  the  intent  and  result  of 
creating  a  monopoly,  restricting  trade,  and  enhancing  prices. 
The  Court  did  not  find  the  defendants1  guilty  of  being  unfair 
to  their  competitors,  of  exacting  improper  prices,  of  mak- 
ing inferior  goods,  of  reducing  wages,  of  acquiring  plants 
for  the  purpose  of  dismantling  them,  or  of  having  obtained 
a  monopoly  of  ore  and  coal  deposits.  It  did,  however,  con- 
demn the  "Gary  dinners"  and  price  controlling  methods  as 
being  illegal  agreements,  but  since  these  had  been  discon- 
tinued before  the  suit  was  filed,  they  were  not  considered  in 
arriving  at  a  decision.126  A  minority  of  the  court  believed 
that  jurisdiction  of  the  case  should  be  retained  for  the  pur- 
pose of  restraining  any  price  control  that  might  be  attempted 
in  the  future,  and  the  Court  expressed  its  willingness,  upon 
request,  to  retain  such  jurisdiction.12 

124  223  Fed.  Rep.  97-114. 

135  223   Fed.   Rep.   178. 

128  223  Fed.   Rep.    160-1. 

121  Ibid.,  pp.   161;   178-9. 


250  Trust  Dissolution 

The  opinion  of  the  Court  did  not  throw  much  new  light 
on  the  meaning  of  the  Sherman  Act,  for  the  judges,  while 
agreeing  that  no  dissolution  would  be  ordered,  did  not  agree 
as  to  their  reasons  for  such  conclusion.  The  decision  also 
failed  to  define  what  constitutes  an  illegal  combination. 

Appeal  was  taken  by  the  Government  to  the  Supreme 
Court,  and  the  case  was  argued  there  in  March  1917.  Jus- 
tices Brandeis  and  McReynolds  did  not  participate  because 
of  previous  connection  with  the  case. 


CHAPTER  VIII 

OTHER  CASES  AWAITING  DECISION 

GREAT  LAKES  TOWING  COMPANY 

THE  Great  Lakes  Towing  Company  was  organized  in 
1899  by  promoters  who  were  heavily  interested  in  the 
transportation  of  coal,  oil  and  ore  on  the  Great  Lakes.1 
Before  1899  lake  transportation  was  carried  on  by  a  large 
number  of  independent  companies.  The  promoters  of  the 
combination  secured  the  property  and  business  of  the  local 
tug  operators  in  fourteen  of  the  principal  ports  on  the  Great 
Lakes,  except  Lake  Ontario.  One  hundred  and  twenty 
tugs  were  acquired,  the  vendors  agreeing  not  to  reenter  the 
business  within  five  years.  Contracts  were  entered  into  with 
several  other  tug  owners  to  keep  the  latter  out  of  the  busi- 
ness, and  wherever  competition  arose  the  combination  low- 
ered prices  even  to  the  losing  point  until  it  was  eliminated. 
In  1900,  a  system  of  exclusive  contracts  was  put  into 
effect  for  the  tug  and  wrecking  service  at  all  the  points  cov- 
ered by  the  company's  tariffs.2  Discounts  ranging  from  20 
to  30  percent  of  the  tariff  rates  were  allowed  to  all  who 
exclusively  patronized  the  company.  The  contract  rates 
were  moreover  guaranteed  not  to  exceed  the  rates  of  compet- 
itors. By  means  of  such  contracts,  the  company  obtained 
control  of  from  90  to  '95  percent  of  the  towing  business.3 
Competition  was  impossible;  loss  at  one  point  was  made  up 
by  profit  from  others.  Rate  wars  and  rebates  made  the 
control  more  complete,  so  that  from  1904  to  1913  the  com- 
pany had  no  real  competition  at  any  of  the  fourteen  ports, 
and  in  the  latter  year  it  controlled  95  percent  of  the  harbor 

J208  Fed.  Rep.,  734  et  seq. 
2  Ibid.,  pp.  738-9. 
8  Ibid.,   p.    739. 

251 


252  Trust  Dissolution 

towing  on  the  Great  Lakes  at  these  ports.4  No  other  ports, 
except  one,  were  attractive  to  the  combination  from  a  busi- 
ness point  of  view.  The  operations  of  the  company  proved 
profitable  to  its  stockholders  from  the  first.5 

In  1910  a  petition  was  filed  to  dissolve  the  combination 
of  towing  facilities  on  the  Great  Lakes,  and  early  in  1913 
a  decision  favorable  to  the  Government  was  handed  down  by 
the  Circuit  Court.6  The  company  was  given  thirty  days  to 
present  a  plan  by  which  its  services  should  be  given  for  the 
equal  benefit  of  all  needing  such  facilities,  and  by  which  the 
rights  of  competitors  should  be  safeguarded  and  the  illegal 
practices  should  be  eliminated.  The  plan  presented  by  the 
defendants  was  not  accepted  and  it  was  two  years  before  a 
decree  was  entered.7  The  Court  refused  to  dissolve  the 
company,  although  admitting  that  it  was  a  monopoly  created 
by  abnormal  and  unfair  means.  The  decree  enjoined,  among 
other  things,  the  following  practices:  granting  concessions, 
discounts  or  rebates,  regardless  of  the  amount  of  the  busi- 
ness; making  rate  wars,  or  cutting  rates  for  the  same  kind 
and  quality  of  service  furnished  by  a  competitor;  making 
any  rates  more  than  25  percent  below  the  tariff  rates ;  mak- 
ing a  rate  below  the  cost  of  service ;  making  exclusive  agree- 
ments; and  refusing  prompt  and  practicable  service.8 

The  Government  did  not  believe  the  decree  gave  adequate 
relief  and  has  appealed  to  the  Supreme  Court  where  the  case 
is  pending. 

THE  EASTMAN  KODAK  COMPANY 

The  business  of  the  Eastman  Kodak  Company  was  con- 
centrated and  directed  by  Mr.  George  Eastman,  who  entered 
the  field  in  1878  before  the  film  roll  system  of  photography 
was  known,  at  a  time  when  the  trade  was  relatively  small  and 
chiefly  confined  to  professional  practice.9  About  that  time 

4  208  Fed.  Rep.  739-40. 

6  Ibid.,  p.   744. 
•Ibid.,  p.   733. 

7  217  Fed.   Rep.  657. 

8  Trust  Laws  and  Unfair  Competition,  pp.  463,  468,  469,  479,  481,  486. 
•226  Fed.  Rep.   66-81. 


Other  Cases  Awaiting  Decision  253 

numerous  improvements  began  to  be  made  in  the  photographic 
process  which  made  it  far  less  difficult  and  greatly  increased 
the  nlimber  of  amateur  photographers.  One  of  the  most  im- 
portant improvements  was  the  film  roll  system  of  photog- 
raphy. The  Eastman  interests  invented  some  of  the  new 
devices  and  acquired  control  of  many  others,  including  some 
of  the  most  important,  through  purchase  or  litigation.  Be- 
tween 1895  and  1899  control  was  acquired  of  three  important 
camera  producers  which,  together  with  their  patents  and 
trade-marks,  gave  the  Eastman  interests  control  of  a  large 
part  of  the  manufacture  of  roll  film  and  film  plate  cameras 
and  formed  the  nucleus  for  a  dominant  position  in  the  indus- 
try. In  1898  the  sales  of  the  company  amounted  to  about 
$2,000,000.10 

During  this  same  period  the  Eastman  company  secured 
control  of  the  printing-out  or  developing  paper  upon  which 
modern  photography  is  dependent.  The  raw  stock  from 
which  such  paper  is  made  must  be  free  from  metallic  sub- 
stances and  until  recently  the  trade  was  dependent  for  its 
raw  stock  upon  two  sources,  one  in  France  and  one  in  Prus- 
sia, where  the  waters  are  free  from  metallic  substances.  The 
raw  stock  of  paper  from  these  two  points  was  controlled  by 
a  foreign  company,  the  General  Paper  Company.  The  East- 
man interests  proceeded  to  acquire  control  of  the  printing- 
out  paper  in  this  country  and  during  1898-9  a  large  number 
of  domestic  companies,  controlling  the  manufacture  of  prac- 
tically all  the  printing-out  paper  in  the  country,  were  ac- 
quired.11 At  the  same  time  the  Eastman  company  secured 
control  of  the  raw  stock  of  paper  from  abroad  through  con- 
tract with  the  General  Paper  Company,  by  which  agreement 
the  Eastman  company  received  the  exclusive  sales  right  of 
such  paper  in  the  United  States,  Canada  and  Mexico.12 
Thus,  the  Eastman  interests  secured  not  only  complete  con- 
trol of  the  raw  stock  of  printing-out  or  developing  paper 
used  in  North  America,  but  also  a  control  of  the  manu- 
facture of  developing  paper  in  this  country. 

The  company  was  then  in  a  position  to  enforce  restrictive 

10  226  Fed.  Rep.  71.  u  Ibid. 

"Ibid.,  pp.  71-3. 


254  Trust  Dissolution 

contracts  with  the  dealers  in  photographic  supplies  through- 
out the  country.13  As  a  result  of  these  contracts  the  com- 
pany sold  95  percent  of  the  photographic  paper  purchased 
in  1901.  14  The  company  also  continued  to  acquire  com- 
petitors. Between  1902  and  1906  twenty  competing  com- 
panies were  absorbed  and  their  plants  were  dismantled  and 
the  business  removed  to  the  Eastman  factory  at  Rochester, 
New  York.15  Such  acquisitions  were  continued  up  to  the 
filing  of  the  Government's  suit  seven  years  later.  In  nearly 
every  instance  the  purchase  agreement  contained  restrictive 
covenants  prohibiting  the  officers  of  the  acquired  company 
from  reentering  the  business  for  periods  ranging  from  five  to 
twenty  years.16  The  large  sums  paid  for  some  of  these  com- 
peting concerns  showed  how  great  was  the  advantage  in  hav- 
ing them  out  of  the  way.17 

This  method  of  dealing  with  competitors  was  illustrated 
when  the  Artura  printing-out  or  developing  paper,  though 
not  entirely  free  from  metallic  substances,  came  rapidly  into 
use  about  1908.  This  paper  was  made  by  a  company  of  the 
same  name.  The  Eastman  company  met  this  competition  by 
reducing  prices  on  its  paper  and  warning  its  dealers  not  to 
handle  the  Artura  paper.  After  a  time  the  Eastman  com- 
pany acquired  the  Artura  Company  for  $1,$50,000.18  The 
officers  of  the  latter  agreed  not  to  reenter  the  business  for  a 
period  of  twenty  years.  In  order  to  drive  out  competitors 
the  Eastman  company  also  purchased  many  of  the  stock 
houses  engaged  in  the  sale  of  photographic  supplies.  The 
contracts  imposed  upon  the  dealers  furnished  a  more  effective 
means  of  destroying  competitors.  From  1899  to  1908  all 
Eastman  supplies  were  sold  to  dealers  under  restrictive  con- 
tracts fixing  the  sale  prices  and  prohibiting  the  dealer  from 
handling  the  goods  of  a  competitor.19  The  control  of  im- 
portant patents  and  of  the  photographic  paper  supply  en- 
abled the  company  to  extend  its  restrictive  agreements  effec- 


Fed.  Rep.,  76. 
14  Ibid.,  p.   74. 

*  Ibid.,  pp.    64,    75. 
"Ibid.,  p.  75. 

*  Ibid.,  p.    79. 
M  Ibid.,  p.  76. 
"Ibid.,  p.   76   ff. 


Other  Cases  Awaiting  Decision  255 

tively  over  unpatented  supplies.  The  company  limited  the 
number  of  dealers  in  a  given  territory  in  order  to  induce  deal- 
ers to  enter  the  contracts.  A  more  effective  method  of  en- 
forcing the  contracts  was  to  grant  special  discounts  and 
extra  profits  to  dealers  who  observed  all  the  provisions  of 
their  agreements.20  After  1908  the  special  discounts  were 
superseded  by  "terms  of  sale"  which  provided  for  the  exclu- 
sive sale  of  Eastman  products  at  listed  prices  to  approved 
purchasers,  and  a  violation  of  the  terms  of  sale  on  specified 
products  gave  the  company  the  right  to  revoke  the  dealers' 
privilege  to  sell  any  of  the  company's  products.21 

Aided  by  the  control  of  photographic  paper,  both  raw 
and  finished,  the  numerous  acquisitions  of  competitors,  ac- 
companied by  covenants  restraining  the  vendors  from  re- 
entering  the  business,  and  the  imposition  of  restrictive  con- 
tracts upon  the  dealers,  the  Eastman  company  was  enabled, 
as  late  as  1913,  to  control  from  75  to  80  percent  of  the 
entire  trade  in  cameras,  films,  plates  and  photographife 
paper.22  Among  one  hundred  and  forty-six  stock  houses 
it  was  found  that  86  percent  of  the  purchases  were  made 
from  the  Eastman  company.  The  company  also  had  ex- 
clusive contract  to  supply  the  Motion  Picture  Patent  Com- 
pany with  all  of  its  manufactured  moving  picture  film,  ex- 
cept an  amount  equal  to  2.5  percent.23 

The  evidence  of  monopoly  in  this  industry  is  further 
strengthened  by  a  consideration  of  the  profits  obtained  by 
the  Eastman  company,  which  for  1912  were  $15,633,551 
or  171  percent.24  Moreover,  this  profit  was  made  on  sales 
amounting  to  only  $24,763,4*07,  thus  showing  an  exces- 
sive margin  between  the  cost  of  manufacture  and  the  price 
paid  by  the  consumer.25 

A  dissolution  suit  under  the  Sherman  law  was  filed  against 
the  Eastman  Kodak  Company  in  1913.  The  opinion  of  the 
District  Court  in  1915  was  that  the  defendants  had  a  mo- 

20  226  Fed.  Rep.,  76. 

21  Ibid.,  p.  64. 

23  Ibid.,  p.  79. 
38  Ibid. 

24  Ibid.,  p.  76. 
"Ibid.,  p.  76. 


256  Tru$t  Dissolution 

nopoly  which  unduly  and  unreasonably  restrained  trade.20 
This  court  did  not  require  a  dissolution,  but  gave  the  de- 
fendants until  November  to  present  a  plan  of  terminating 
the  monopoly  in  photographic  cameras,  films,  paper  and 
plates.  The  company's  plan  which  was  presented  did  not 
provide  for  a  separation  of  the  business  and  it  was  there- 
fore rejected  by  the  court  as  not  giving  adequate  relief. 
Early  in  1916,  an  interlocutory  decree  was  entered  which 
enjoined  the  four  individuals  and  the  two  corporate  de- 
fendants from  continuing  any  contracts,  restraints  of  trade, 
terms  of  sale,  or  practices,  which  would  maintain  the  mo- 
nopoly.27 The  assets  and  business  of  the  Eastman  Kodak 
Company  of  New  Jersey  and  the  Eastman  Kodak  Company 
of  New  York  were  required  to  "be  divided  in  such  manner 
and  into  such  number  of  parts  of  separate  ownership  as 
may  be  necessary  to  establish  competitive  conditions."  28  The 
defendants  were  given  ninety  days  to  present  a  plan  for  such 
a  separation.  An  appeal  from  this  decree  was  taken  to  the 
Supreme  Court  where  the  case  is  now  pending. 

It  is  unsafe  to  predict  the  attitude  of  the  Supreme  Court 
in  regard  to  this  dissolution  decree,  but  in  view  of  the  way 
in  which  the  Eastman  control  has  been  extended,  maintained 
and  misused,  in  order  to  wrest  such  enormous  profits  from 
the  public  for  the  benefit  of  a  few  individuals,  it  would  seem 
that  a  dissolution  based  upon  the  above  plan  is  not  only 
desirable  but  also  necessary  if  general  competition  is  to  be 
restored  in  the  industry. 

THE  MOTION  PICTURE  PATENTS  COMPANY 

The  Motion  Picture  Patents  Company  was  formed  in 
1908  by  manufacturers  and  importers  for  the  purpose  of 
monopolizing  the  trade  in  films,  cameras,  projecting  ma- 
chines, and  other  accessories  of  the  motion  picture  business, 
and  also  in  order  to  insure  the  control  of  the  entire  motion 
picture  business.29  At  that  time  there  were  scores  of  job- 

*226  Fed.  Rep.,  81. 
"230  Fed.  Rep.,  622. 
"Ibid.,  p.  524-5. 
»225  Fed.  Rep.,  808-812. 


Other  Cases  Awaiting  Decision  257 

bers  buying  and  distributing  films  and  supplies  to  thou- 
sands of  exhibitors  throughout  the  country.  The  total 
investment  in  the  business  ran  into  millions  and  the  busi- 
ness was  expanding  very  rapidly.  It  was  worth  monopoliz- 
ing. The  combining  interests  controlled  sixteen  patents, 
ten  of  which  were  not  important.  The  remaining  six  con- 
trolled films,  cameras,  the  "Latham  loop,"  and  projecting 
cameras.  The  organization  of  1908  took  over  these  patents 
which  were  relied  upon  as  a  legal  defense  of  the  combination. 
The  first  part  of  the  plan  was  to  unite  by  some  agree- 
ment the  manufacturers  and  importers  of  films  so  that  they 
would  act  as  a  unit.  To  this  end  "lists  of  exchanges  and 
of  theaters  were  prepared,  and  no  exchange  was  permitted 
to  have  the  films,  and  no  theatre  to  exhibit  them,  unless  with 
the  consent  of  all  the  defendants.  The  names  of  none  ap- 
peared upon  this  list  except  such  as  bought  all  supplies  from 
the  defendants,  and  any  who  dealt  otherwise  were  dropped. 
Every  theatre  was  required  to  pay  a  royalty  for  the  use 
of  the  projecting  machine,  even  when  the  machine  had  been 
owned  by  the  exhibitor  before  the  combination  was  formed. 
The  films  passed  into  the  possession  of  exchanges  and  ex- 
hibitors under  an  agreement  which  enabled  the  defendants 
to  recall  them  at  will.  It  is  too  clear  for  comment  that  the 
mere  possession  of  the  power  here  shown  would  make  its 
assertion  seldom  necessary.  It  was,  however,  effectively 
exercised."30  The  combination  also  created  a  board  to  cen- 
sor films,  not  purely  for  improving  the  character  of  the 
displays  and  the  technique,  but  also  to  look  after  the  con- 
trol of  the  patents.31  At  first  the  company  licensed  one 
hundred  and  sixteen  jobbers  who  helped  to  carry  on  its 
business,  but  in  a  short  time  it  decided  to  do  its  own  dis- 
tributing and  organized  the  General  Film  Company  to  take 
over  the  business  of  distribution.32  Only  one  of  the  jobbers 
remained  in  its  employ.  As  a  result  of  these  steps  the  com- 
bination was  very  successful  in  monopolizing  the  accessories 
of  the  motion  picture  business,  and  largely  achieved  a  domi- 

*°  225  Fed.  Rep.,  209. 
« Ibid.,  p  811. 
"Ibid.,  p.  809. 


258  Trust  Dissolution 

nation  in  the  motion  picture  presentation  itself,  which,  if 
unchecked,  would  ultimately  have  suppressed  the  writing  or 
dramatic  enactment  of  plays,  except  by  authors  and  artists 
favored  by  the  company. 

In  1912,  a  petition  was  filed  against  the  Motion  Picture 
Patents  Company  to  remove  restraints  imposed  upon  the 
trade  and  commerce  in  all  machines  and  accessories  pertain- 
ing to  the  motion  picture  art,  and  upon  persons  engaged 
in  such  trade.  The  Circuit  Court  entered  a  decision  favor- 
able to  the  Government  in  1915, 33  and  a  decree  early  in 
1916,  granting  the  relief  sought  by  the  petition.  The  de- 
fendants have  appealed  to  the  Supreme  Court  where  the 
case  is  now  pending. 

THE   KEYSTONE   WATCH    CASE   COMPANY  84 

The  business  of  manufacturing  watches  may  be  divided 
into  two  parts,  the  manufacture  of  cases,  of  which  more 
than  90  percent  are  "filled,"  and  the  manufacture  of  watch 
movements.35  The  Keystone  Watch  Case  Company  was  a 
combination  which  secured  a  substantial  control  of  the  busi- 
ness of  manufacturing  watch  cases.  The  combination  be- 
came well  established  in  1899  through  the  organization  of 
the  Keystone  Watch  Case  Company  which  immediately  ac- 
quired control  of  two  other  watch  case  companies  and  or- 
ganized a  third  company  which  was  operated  as  a  bogus 
independent. 

In  1900,  the  combination  began  the  manufacture  of 
watch  movements  by  acquiring  the  entire  stock  of  the  New 
York  Standard  Watch  Company,  makers  of  low  grade 
watch  movements.  This  was  followed  by  the  acquisition 
of  the  United  States  Watch  Company  in  1901  and  the 
E.  Howard  Clock  Company  in  1903.  The  watch  movement 
of  the  latter  was  well  known  and  popular.  A  new  corpora- 
tion, the  E.  Howard  Watch  Company,  was  organized  to 
take  over  the  latter  two  companies.  The  new  corporation 

88  225   Fed.   Rep.   800. 

**  Stevens,  W.  S.,  The  Keystone  Watch  Case  Company,  Quart.  Jour, 
of  Econ.,  V.  26,  pp.  602-8;  218  Fed.  Rep.  502-519. 
85  218  Fed.  Rep.,  505. 


Other  Cases  Awaiting  Decision  S59 

then  began  to  manufacture,  advertise  and  sell  a  high  grade 
watch  known  as  the  E.  Howard  movement,  which  differed 
in  many  respects  from  the  old  genuine  Howard  watch.  The 
combination  also  purchased  the  entire  common  stock  of 
the  Crescent  Watch  Case  Company  in  1903,  an  old  concern 
which  had  previously  acquired  the  entire  business  of  the 
American  Waltham  Watch  Company  and  the  Bay  State 
Watch  Company.  In  the  same  year  it  purchased  42  per- 
cent of  the  stock  of  the  American  Watch  Case  Company  of 
Toronto.  The  balance  of  the  stock  of  the  latter  was  held 
by  the  Elgin  and  Waltham  Watch  companies.  The  com- 
bination organized  the  Keystone-Crescent  Watch  Case  Com- 
pany to  market  the  products  of  the  American  Watch  Case 
Company,  and  it  then  proceeded  to  make  contracts  with  the 
Elgin  and  Waltham  companies,  making  the  combination  al- 
most the  exclusive  foreign  sales  agency  of  the  latter  com- 
panies. Other  less  important  concerns  were  acquired  from 
time  to  time. 

Prior  to  1910,  the  operations  of  the  combination  through 
the  Keystone  company  were  largely  secret.  The  separate 
companies  and  sales  agencies  were  continued.  Early  in  this 
year  however,  all  of  the  assets  of  the  various  subsidiary  com- 
panies were  openly  transferred  to  the  Keystone  Watch  Case 
Company  and  at  the  same  time  a  circular  letter  was  sent 
to  the  jobbers  throughout  the  country.36  This  contained: 
(1)  a  memorandum  of  prices  that  was  sent  to  all  the  retail 
trade;  (2)  a  memorandum  of  prices  at  which  Boss,  Cres- 
cent, Planet,  Crown  and  Silveroid  watch  cases  and  Excel- 
sior watches  were  to  be  billed  in  the  future  to  agents,  which 
prices  were  to  be  net  and  subject  to  a  cash  discount  only; 
(3)  notice  that  sales  of  the  brands  mentioned  above  would 
be  at  fixed  prices,  and  that  it  was  desired  that  sales  by 
jobbers  to  retailers  should  be  at  fixed  prices,  subject  to  cash 
discount  only;  (4)  a  request  that  jobbers  of  goods  under 
the  above  trade  marks,  and  the  Howard  trade  mark  also, 
should  not  deal  in  watch  cases  of  any  competitor;  (5)  a 
promise  of  the  exclusive  agency  to  jobbers  conforming 
voluntarily  to  the  wishes  of  the  company  in  the  matter  of 
86  Stevens,  Quart.  Jour,  of  Econ.,  V.  26,  p.  607. 


260  Trust  Dissolution 

sales;  (6)  a  threat  that  the  company  would  refuse  to  sell 
its  goods  to  jobbers  handling  them  in  a  manner  regarded 
as  detrimental  to  its  interests;  (7)  the  requirement  that  all 
advertisements  of  Keystone  goods  must  be  approved;  (8) 
the  announcement  that  Howard  watches  would  be  sold  under 
terms  of  a  license  issued  with  each  watch  which  required  (a) 
that  the  movement  should  not  be  removed  from  its  case  or 
used  in  any  other  case,  nor  the  case  used  for  any  other 
movement;  (b)  that  the  watch  should  not  be  sold  to  any 
one  regarded  as  objectionable  to  the  manufacturer,  nor 
should  license  be  removed  from  any  box  nor  the  box  sold 
without  the  license;  (c)  and  that  retailers  must  not  sell  the 
watch  at  less  than  the  fixed  price.  The  license  stated  that 
the  watch  was  covered  by  patents  and  that  any  violation  of 
the  above  conditions  would  constitute  an  infringement  which 
would  result  in  prosecution.  The  circular  letter  was  fol- 
lowed up  by  agents  of  the  Keystone  company  who  informed 
the  jobbers  that  the  terms  set  forth  in  the  mildly  worded 
epistle  would  be  strictly  enforced  and  that  if  the  demands 
were  not  observed  the  jobbers  might  be  denied  the  Keystone 
goods  which  constituted  about  fifty  percent  of  those  in  the 
market.37  This  threat  was  influential  in  securing  exclusive 
contracts  from  a  large  percentage  of  the  jobbing  houses.38 

Another  unfair  method  of  suppressing  competition  prac- 
ticed by  the  Keystone  company  was  ruinous  price  cutting 
on  inferior  goods.  The  Philadelphia  watch  case  works  of 
the  company  were  used  to  manufacture  large  quantities  of 
inferior  grade  watch  cases  not  labeled  with  any  of  the  Key- 
stone brands.  These  were  sold  regardless  of  cost  for  the 
sole  purpose  of  driving  out  competitors.  As  a  result  of 
unfair  methods  the  Keystone  company  forced  out  of  the 
filled  watch  case  business  all  its  competitors  except  six  who 
together  did  not  control  more  than  20  percent  of  the  watch 
case  business,  leaving  the  Keystone  company  80  percent  of 
this  trade.39 

The    profits    of    the    Keystone    company    indicate    the 

87  218  Fed.  Rep.,  503. 

88  Stevens,  Quart.  Jour,  of  Econ.,  V.  26,  p.  607. 

89  Ibid. 


Other  Cases  Awaiting  Decision  261 

effective  enforcement  of  its  price  policy.  Aside  from  the 
amount  of  gold  used,  the  cost  of  manufacturing  similar  sizes 
and  patterns  of  watches  is  about  the  same.  Yet  in  one  in- 
stance the  cost  to  the  retail  purchaser  of  a  certain  watch 
case  was  twice  that  of  a  similar  case  containing  twenty 
cents  worth  of  gold  less.40  The  capital  stock  of  the  Key- 
stone company  was  $8,000,000  in  1910,  about  half  of  which 
stock  represented  intangible  assets.  Nevertheless,  the  prof- 
its in  that  year  amounted  to  fourteen  percent  on  the  entire 
capital  stock.41 

In  1911,  the  Government  filed  a  suit  to  dissolve  the  Key- 
stone company.  The  decree  of  the  Circuit  Court  in  1915 
was  partly  favorable  to  the  Government.42  It  contained 
an  injunction  against  the  policy  of  boycott  outlined  in  the 
circular  letter  which  had  never  been  withdrawn,  as  well  as 
against  the  restriction  on  the  retail  sales  of  the  Howard 
watch.  Aside  from  these  restrictions  the  court  held  that 
there  was  enough  competition  in  the  watch  case  business  to 
warrant  a  refusal  to  dissolve  the  Keystone  company.  How- 
ever, jurisdiction  of  the  bill  was  retained  lest  future  condi- 
tions "should  make  it  desirable  for  the  Government  to  ask 
for  additional  relief,  even  to  the  point  of  breaking  up  the 
defendant  corporation."43  From  this  decree  both  the  Gov- 
ernment and  the  defendants  have  appealed  to  the  Supreme 
Court. 

THE  CORN  PRODUCTS  REFINING  COMPANY  44 

Two  of  the  chief  products  derived  from  corn  are  starch 
and  glucose.  Starch,  which  is  used  for  mill,  laundry,  and 
food  purposes,  is  sold  both  in  bulk  and  in  packages.  Glu- 
cose is  derived  from  starch  through  the  use  of  hydrochloric 
acid.  The  commercial  glucose  is  a  water  solution  of  various 
glucose  sugars,  neutral  and  non-crystallizable  at  all  degrees 
of  saturation.  It  contains  25  percent  of  true  glucose  and 

"Stevens  Quart.  Jour,  of  Econ.,  V.  26,  p.  602. 
41  Ibid.       **218  Fed.  Rep.  502. 
^Ibid.,  p.   519. 

"Dewing,  Corporate  Promotions  and  Reorganizations,  1914,  Harvard 
Economic  Studies,  V.  10,  pp.  72  et  seq.;  234  Fed.  Rep.  964. 


262  Trust  Dissolution 

is  a  wholesome  almost  chemically  pure  sugar.  Owing  to  its 
cheapness  and  the  property  of  dissolving  nearly  its  own 
weight  of  cane  sugar  it  forms  the  basis  of  candy  manufac- 
ture and  of  all  manufactured  jellies,  preserves,  fillings  and 
similar  products,  and  also  of  imitation  maple  syrup  and 
honey.  When  rightly  utilized,  it  is  a  valuable  food  of  great 
purity  and  cheapness.  Grape  sugar,  which  is  solid  glucose, 
is  used  in  the  brewing  and  tanning  industries. 

Combination  in  the  production  of  starch  appeared  ear- 
lier than  in  the  glucose  industry.  In  1890  there  were  twen- 
ty-three manufacturers  of  starch,  all  small  and  mainly  in 
the  middle  west.45  In  that  year  twenty  of  the  plants  were 
acquired  by  the  National  Starch  Manufacturing  Company, 
a  holding  company  with  a  capital  stock  of  $10,500,000,  or- 
ganized to  control  the  supply  and  prices  in  the  starch  in- 
dustry.46 The  vendors  agreed  as  part  of  the  considera- 
tion not  to  r center  the  trade  for  five  years.  This  combi- 
nation thus  received  control  of  between  75  and  80  percent 
of  the  entire  starch  business.47  New  competition  developed 
during  the  next  ten  years  and  in  1900  a  new  holding  com- 
pany was  organized,  the  National  Starch  Company,  which 
acquired  control  of  practically  all  the  starch  manufacture 
of  the  country,  except  that  used  by  the  glucose  manufac- 
turers in  their  business.48  Competition  again  arose  and  in 
1902  a  large  combination  of  both  the  starch  and  glucose  in- 
dustries was  effected. 

While  the  starch  interests  were  being  consolidated,  com- 
bination also  occurred  in  the  glucose  industry.  Prior  to 

1884  little  glucose  was  manufactured  in  this  country  on  ac- 
count of  an  almost  universal  prejudice  against  its  use.     In 
that  year  a  federal  investigating  committee  published  a  re- 
port asserting  that  glucose  was  wholesome,  and  as  a  result 
the  demand  for  it  immediately  increased  and  a  number  of 
small  factories  were  established  in  the  middle  west.     Between 

1885  and  1890  pools  were  formed  among  the  companies,  con- 
trolling from  45  to  65  percent  of  the  output.     Competition, 

45  234  Fed.  Rep.  968. 
"Ibid.,  pp.  968-9. 
47  Ibid.,  p.  968. 
"Ibid.,  p.  969. 


Other  Cases  Awaiting  Decision 

following  the  breaking  up  of  the  pool  in  1890,  led  to  local 
combination  and  by  1897  the  entire  industry  was  in  the 
hands  of  seven  producers,  among  which  the  Chicago  Sugar 
Refining  Company  was  the  largest.  During  that  year  six  of 
these  companies,  controlling  85  percent  of  the  output,  were 
acquired  by  the  Glucose  Sugar  Refining  Company  which  was 
organized  for  this  purpose.  The  assets  of  the  company 
amounted  to  about  $7,500,000,  against  which  over  $37,000,- 
000  in  stock  was  issued.49  Yet  the  preferred  stock  soon  sold 
at  $95  and  the  common  at  $52,  yielding  the  promoters  an 
immediate  profit  of  fully  $4,500,000.50  After  four  years 
the  stocks  were  selling  at  $109  and  $62,  respectively. 

This  combination,  which  raised  the  price  of  glucose  to 
$1.60  per  hundred  pounds  or  nearly  60  percent,  had  three 
very  prosperous  years  during  which  it  paid  over  21  percent 
on  its  real  investment.51  During  the  first  year  a  rebate  of 
25  cents  per  hundred  was  given,  payable  at  the  end  of  six 
months  to  all  customers  who  confined  their  purchases  of  glu- 
cose and  sugar  to  the  combination.52  This  policy  created 
hostility  on  the  part  of  the  jobbing  and  candy  trade  and 
brought  retaliation  and  increased  competition.  Competition 
was  inevitable  because  glucose  was  a  staple  commodity  and 
there  were  no  patented  processes  to  prevent  any  one  with 
relatively  small  means  from  entering  the  trade.  By  the 
end  of  the  fourth  year  the  combination's  control  had  been 
reduced  at  about  45  percent  of  the  trade.53  After  announc- 
ing a  deficit  for  the  year  the  price  of  the  stock  fell  with  a 
crash. 

To  regain  a  dominant  position  a  new  consolidation  was 
planned.  The  strongest  competitor  was  the  New  York  Glu- 
cose Company  which  was  controlled  by  the  Standard  Oil 
group.54  No  combination  could  succeed  without  including 
this  company.  After  securing  49  percent  of  its  stock,  and 
confidently  expecting  to  get  2  percent  more,  the  promoters 

49  Dewing,  p.  79. 
60  Ibid.,  pp.  80-2. 
81  Ibid.,  p.  86. 
» Ibid.,  p.  83. 
"Ibid.,  p.  85. 
M  Ibid.,  p.  85. 


£64  Trust  Dissolution 

proceeded  in  1902  to  organize  the  Corn  Products  Company 
which  took  over  the  old  combination  and  the  Charles  Pope 
Glucose,  Illinois  Sugar  Refining,  and  National  Starch  com- 
panies. The  $76,000,000  of  capital  stock  of  the  new  com- 
pany was  practically  all  given  in  exchange  for  the  combin- 
ing interests  whose  plants  were  not  worth  more  than  $12,- 
000,000.55  Yet  the  market  value  of  the  stock  was  over  four 
times  this  amount.56  The  acquisition  of  the  National  Starch 
Company  consolidated  the  control  of  the  starch  and  glu- 
cose industries. 

The  Corn  Products  Company  started  with  about  80  per- 
cent of  the  glucose  refining  capacity.57  Its  first  year  was 
prosperous,  but  after  that  year  fires,  high  corn  prices,  in- 
efficient management,  reckless  finance,  and  vigorous  compe- 
tition reduced  the  combination  to  sorry  financial  straits.58 
By  1905  its  refining  capacity  was  only  about  46  percent  of 
the  total.59  It  never  secured  more  than  49  percent  of  the 
stock  of  the  New  York  Glucose  Company,  its  strongest  com- 
petitor, which  in  1903  refused  to  co-operate  and  in  the  fol- 
lowing year  began  to  withhold  all  dividends  on  its  stock. 
Inefficient  plants,  financial  weakness  and  friction  within  the 
combination  led  to  a  reorganization  in  1906,  which  was  en- 
tirely dominated  by  the  New  York  Glucose  Company.60  The 
new  concern  was  the  Corn  Products  Refining  Company.  The 
stockholders  of  the  old  combination  surrendered  one-third 
of  their  shares  for  the  remaining  51  percent  of  the  New 
York  company  and  the  assets  of  two  other  outside  com- 
panies, and  the  management  was  also  surrendered  to  the 
New  York  company.61  The  total  assets  of  the  combination 
were  worth  about  $15,000,000,  against  which  there  were 
$9,494,360  in  bonds,  $30,000,000  of  preferred  and  $50,- 
000,000  of  common  stock.62  Yet  the  stocks  began  selling 

65  Dewing,  p.  94. 
Ibid.    p.  95. 


67  Ibid. 

68  Ibid. 
89  Ibid. 
60  Ibid. 
«  Ibid. 
«2Ibid. 


p.  95. 
pp.  97-101. 
p.  101. 
p.  101. 
p.  103. 
p.  108. 


Other  Cases  Awaiting  Decision  £65 

at  $80  and  $25  respectively,  or  at  eight  times  their  actual 
worth  in  the  equities  of  the  company.63 

The  Corn  Products  Refining  Company  started  out  with 
about  71  percent  of  the  refining  output,  but  its  grinding 
capacity  was  equal  to  from  85  to  100  percent  of  the  total 
grind.64  Its  actual  grind  of  corn  remained  fairly  constant 
from  year  to  year,  being  slightly  greater  in  1906  than  in 
1913.  In  the  latter  year  it  was  32,500,000  bushels  or  65 
percent  of  the  total.65  The  remaining  35  percent  was  di- 
vided among  nine  competitors,  three  of  which  were  organized 
after  1906.  Gains  in  actual  grinding  were  consistently  made 
by  the  independents.  In  the  production  of  starch  the  com- 
pany's percentage  remained  quite  constant.  It  was  about 
64  percent  in  1906,  over  70  in  1907,  1910  and  1911,  67  in 
1912,  63  in  1913,  and  58  in  1914.66  The  figures  for  the 
latter  year  were  affected  by  the  war  and  high  corn  prices. 
In  the  production  of  glucose  the  company's  percentage  de- 
clined. It  was  about  57  percent  in  1913  and  53  percent  in 
1914. 67  Its  production  of  mixed  syrup  declined  from  100 
to  about  88  percent  in  1914. 

The  new  management  in  its  efficiency,  conservative 
finance,  and  policy  of  expansion  followed  the  methods  of  the 
Standard  Oil  Company.  Control  was  extended  into  the 
candy  business  and  other  products.  Every  device  which  in- 
genuity could  discover  was  employed  to  maintain  the  control 
of  the  industry.68  A  profit  sharing  plan  was  followed  during 
the  first  four  years,  according  to  which  each  customer  was 
to  be  repaid  out  of  profits  from  10  to  15  cents  for  every 
hundred  pounds  of  glucose  or  grape  sugar  purchased  from 
the  combination,  but  these  rebates,  accumulating  in  any 
one  year,  were  payable  at  the  end  of  the  following  year, 
and  then  only  on  condition  that  the  purchaser  obtained  none 
of  these  products  from  another  producer.69  This  made  it 

"Dewing,  p.  108. 

"334  Fed.  Rep.  974. 

"Ibid.,  pp.  994,  974. 

"Ibid.,  p.  975. 

« Ibid.,  p.  974. 

"  Ibid.,  pp.  977-1011. 

"Ibid.,  pp.  979-80. 


£66  Trust  Dissolution 

difficult  for  independents  to  secure  customers.  Another  de- 
vice was  the  maintenance  of  bogus  independents  for  the  pur- 
pose of  driving  out  competitors  through  price  cutting.  This 
means  was  used  especially  in  securing  a  position  in  the  candy 
business  J°  During  1910-11  prices  of  the  main  products 
were  lowered  greatly  to  drive  out  independents,  the  combina- 
tion depending  upon  sales  of  package  starch  and  glucose  for 
its  profits.71  The  trust  had  almost  enough  refining  capacity 
to  supply  the  demand  and  had  almost  complete  control  of 
grape  sugar,  hence  it  was  in  a  position  to  carry  out  such  a 
policy.  In  the  early  years  railroad  rebates  were  secured 
through  excessive  allowance  for  switching  roads,  but  this 
was  not  long  continued.  The  frequent  dismantling  of  plants 
was  largely  in  the  interests  of  economy.  The  combination 
dominated  the  syrup  trade  in  connection  with  its  glucose 
control,  partly  by  mixing  syrups  and  selling  all  syrup  under 
its  most  popular  brands,  chief  among  which  was  "Karo," 
without  equal  price  differences.  Efforts  to  fix  prices  and 
restrict  production  were  the  objects  of  the  numerous  re- 
combinations. 

In  1911,  the  Government  filed  a  petition  to  dissolve  the 
Corn  Products  Refining  Company  and  in  1916  the  Circuit 
Court  entered  a  decree  of  dissolution.72  The  court  held  that 
the  plants  of  the  company  were  as  large  as  the  law  of  in- 
creasing returns  demanded  and  that  the  inveterate,  incor- 
rigible and  innate  proclivity  toward  interfering  with  trade 
in  this  industry  demanded  more  relief  than  the  injunction 
gives.  The  defendants  were  given  120  days  in  which  to  file 
a  plan  of  dissolution  with  the  Federal  Trade  Commission 
which  should  act  as  a  master  in  chancery.  An  appeal  has 
been  taken  to  the  Supreme  Court. 

THE  QUAKER  OATS  COMPANY 

The  Quaker  Oats  Company  is  engaged  in  the  business  of 
milling,  manufacturing  and  selling  cereals,  particularly 
rolled  oats  and  its  by-products.  It  is  composed  of  various 

70  234  Fed.  Rep.  pp.  980-85. 

71  Ibid.,  pp.  985-95. 

72  Ibid.,  p.  964. 


Other  Cases  Awaiting  Decision  267 

concerns,  the  acquisition  of  the  American  Cereal  Company 
in  1906  being  one  of  the  important  additions.  In  1911,  it 
produced  about  55  percent  of  the  rolled  oats  output  of  the 
country  and  sold  about  half  of  its  output  in  package  form 
under  the  brand  "Quaker  Oats."  73  The  company  always 
showed  large  profits  but  the  Quaker  brand  lost  some  ground 
just  prior  to  1911.  By  far  the  largest  competitor  at  that 
time  was  the  Western  Cereal  Company  which  controlled  from 
15  to  20  percent  of  the  rolled  oats  output  and  sold  most  of 
its  output  under  the  name  of  "Mother's  Oats."  74  Just  be- 
fore 1911  the  amount  sold  under  this  brand  gained  rapidly 
in  volume  but  the  company  was  running  behind  financially. 
In  1911  the  latter  company  was  acquired  by  the  Quaker  Oats 
Company  whose  earnings  during  the  next  five  years  were  very 
large.  In  spite  of  two  extra  common  stock  dividends  of  50 
and  10  percent,  and  the  regular  10  percent  cash  dividends 
on  the  common  stock,  the  price  of  the  latter  rose  rapidly  from 
$206  to  $363.  Recently  it  was  voted  to  increase  the  common 
from  $7,500,000  and  the  preferred  from  $9,000,000,  each 
to  $15,000,000. 

In  1913  the  Government  filed  a  suit  against  the  Quaker 
Oats  Company  alleging  that  the  purchase  in  1911  consti- 
tuted a  combination  to  restrain  and  monopolize  trade  in  oat- 
meal products  and  by-products.  In  March  1916,  the  Cir- 
cuit Court  decided  the  case  adversely  to  the  Government  by 
a  two  to  one  vote,  each  of  the  judges  writing  an  opinion.75 
An  appeal  has  been  taken  to  the  Supreme  Court. 

THE  AMERICAN  CAN  COMPANY  76 

The  American  Can  Company,  which  was  organized  in 
1901  during  the  great  trust  movement,  was  a  speculative  ven- 
ture of  the  Moore,  Reid  and  Leed  interests.77  Of  the  five 
promoters  only  one,  Mr.  E.  Norton,  was  a  can  maker.  At 
that  time  there  were  from  100  to  175  can  makers  who  sold 

T3232  Fed.  Rep.  504. 

74  Ibid. 

TB232  Fed.  Rep.  499-508. 

78  230  Fed.  Rep.  859  et  seq. 

"  Ibid.,  p.  867. 


268  Trust  Dissolution 

all  or  some  of  the  cans  they  made.78  Their  plants  ranged 
from  little  shops  to  large  factories,  the  Norton  factory  be- 
ing the  largest.  The  industry  was  growing  rapidly  on  ac- 
count of  the  increasing  use  of  cans  for  packing  various  food 
products,  and  patented  can  making  machinery  had  been 
developed. 

The  Moore  interests  through  Mr.  Norton  readily  secured 
options  on  can  making  plants  and  patents  covering  can-mak- 
ing machinery.79  Many  of  the  can  makers  had  gone  through 
price  wars  with  the  Nortons,  and  they  feared  the  opposition 
of  a  large  rival.  They  also  regarded  with  dismay  the  con- 
nection between  the  new  company  and  the  American  Tin 
Plate  Company.  The  latter,  which  monopolized  the  tin  plate 
industry  of  the  country,  had  been  recently  organized  by 
the  Moore  interests.80  Being  dependent  upon  the  Tin  Plate 
Company  for  their  raw  materials  the  can  makers  were  easily 
forced  into  the  combination  through  fear  that  unless  they  did 
submit  there  would  be  price  discrimination  as  well  as  dis- 
crimination against  them  in  deliveries  of  tin  plate.  They 
were  also  more  easily  induced  to  join  because  Norton  had 
secured  options  on  patents  covering  the  best  can-making 
machinery. 

At  the  date  of  organization  in  1901,  the  American  Can 
Company  acquired  95  plants  for  which  it  paid  $23,500,000, 
but  which  were  not  worth  over  $8,500,000. 81  The  promoters 
gave  about  $7,000,000  more  in  cash  making  a  total  of  about 
$30,500,000,  for  which  they  received  $78,000,000  of  stock, 
half  preferred,  which  was  then  worth  in  the  market  about 
$39,000,000.82  The  total  stock  was  $88,000,000,  half  pre- 
ferred. Within  a  short  time  28  more  plants  were  acquired, 
making  123  in  all.83  As  a  part  of  the  consideration  the 
vendors  agreed  not  to  reenter  the  business  for  fifteen  years 
within  a  radius  of  3,000  miles  of  Chicago.  The  company 
thus  controlled  from  90  to  95  percent  of  the  tin  can  output, 

78  230  Fed.  Rep.  864. 
"Ibid.,  p.  868-70. 

80  Ibid.,  pp.  868-70. 

81  Ibid.,  p.  873. 
» Ibid. 
"Ibid.,  p.  868. 


OtJier  Cases  Awaiting  Decision  269 

exclusive  of  supplies  made  by  companies  for  their  own  use.84 
About  three-fourths  of  its  plants  were  dismantled  before  the 
close  of  1903.  The  company  also  acquired  control  of  the 
best  can  making  machinery  and  for  six  years  tried  to  close 
the  machine  shops  to  its  competitors.  For  a  few  years  it 
was  practically  impossible  for  competitors  to  secure  modern 
automatic  machinery,  but  the  demand  stimulated  new  in- 
ventions of  good  can  making  machinery. 

Under  the  necessity  of  realizing  large  and  quick  profits, 
prices  were  immediately  raised,  but  this  increased  competi- 
tion and  the  company  had  no  money  to  purchase  new  com- 
petitors. As  a  result  prices  were  lowered,  but  were  raised 
usually  during  the  canning  season.85  After  1904  the  prac- 
tice of  charging  high  prices  was  discontinued.  From  1911 
to  1913  prices  of  cans,  making  allowance  for  the  cost  of 
tin  plate,  were  about  the  same  as  in  1897-9  although  the  cost 
of  labor  and  machinery  per  unit  had  declined  materially.88 
The  company  always  set  the  standard  prices  for  packing 
cans  throughout  the  country,  and  these  prices  fluctuated 
little  within  the  year,  or  from  year  to  year.87 

The  Can  company  received  material  preferential  rates 
on  its  purchases  of  tin  plate.  From  1902  to  1913  the  com- 
pany bought  its  tin  plate  from  the  American  Tin  Plate 
Company,  a  subsidiary  of  the  Steel  Corporation,  under  a 
contract  by  which  it  was  to  get  the  tin  at  a  lower  price  than 
any  other  consumer.  The  advantage  thus  received  during 
these  years  amounted  to  $9,000,000.88  The  contract  was 
discontinued  in  1913,  just  before  the  Government  filed  its 
suit,  and  the  Government  alleged  that  this  action  was  taken 
in  view  of  the  impending  suit. 

The  Can  company  continued  to  acquire  competitors.89 
Ten  were  acquired  between  1905  and  1909,  some  of  them  be- 
ing operated  as  independents  for  many  years.  One  of  the 
most  important  acquisitions  was  the  Sanitary  Can  Company 

84  230  Fed.  Rep.  868-9. 

85  Ibid.,  pp.  879-80. 
89  Ibid.,  p.  893. 

87  Ibid.,  p.  892. 

88  Ibid.,  pp.  884-5. 

89  Ibid.,  pp.   886-9. 


270  Trust  Dissolution 

which  had  a  business  of  about  $2,000,000  in  1908.  This 
concern  had  a  patent  liquid  compound  which  could  be  used 
with  machinery  instead  of  solder  to  seal  cans.  Its  sanitary 
cans  were  fast  becoming  popular,  but  its  business  expanding 
too  rapidly,  it  felt  the  financial  stress  of  1907  and  sold  out 
to  the  Can  company.  The  Government  alleged  that  the  latter 
used  its  control  to  exact  higher  prices  for  the  sanitary  cans, 
although  it  cost  no  more  to  make  them. 

The  output  of  cans  for  sale  controlled  by  the  Can  com- 
pany declined  from  about  90  percent  in  1901  to  about  50 
percent  in  1913.  90  The  independents  supplied  the  balance. 
In  that  year  about  one-third  of  the  output  did  not  go  upon 
the  market  but  was  made  by  establishments  for  their  own 
use.91  For  some  time  prior  to  1913  the  company  did  not 
attempt  in  any  pronounced  way  to  further  monopolize  the 
business.  It  began  to  serve  the  trade  through  longer  time 
contracts,  by  providing  storage  facilities,  and  by  its  meth- 
ods of  standardization.  Its  prices,  methods,  and  existence 
were  not  condemned  by  customers  or  competitors  at  the  time 
of  the  trial.  In  1915  the  company  was  operating  about  35 
factories  which  were  favorably  located  throughout  the  coun- 
try. 

The  earnings  of  the  company  upon  the  real  value  of  its 
assets  have  been  excessive,  although  at  first  the  company  was 
embarrassed  because  of  7  percent  cumulative  stocks  amount- 
ing to  several  times  the  value  of  the  assets.  In  1915  the 
company  had  paid  nearly  all  of  the  accumulated  dividends  on 
its  $41,233,300  of  preferred  stock  and  had  a  surplus  of 
$6,000,000.92  The  dividends  paid  would  have  averaged  up- 
wards of  20  percent  on  the  actual  value  of  the  assets.  Al- 
though the  common  stock  of  equal  amount  had  received  no 
dividends  and  represented  only  distant  hopes  when  issued, 
it  sold  as  high  as  $68.50  in  1916. 

In  1913  the  Government  filed  a  petition  to  dissolve  the 
company,  charging  a  monopolization  of  the  manufacture  and 
sale  of  tin  cans,  and  in  1916  the  Circuit  Court  gave  a  de- 


90  230  Fed.  Rep.  898-9. 
"Ibid. 


Moody's  Manual,  1916,  pp.  2041-2. 


Other  Cases  Awaiting  Decision  £71 

cision  in  the  case.93  The  record  of  the  proceedings  filled 
over  8,700  printed  pages.  The  court  held  that  the  company 
in  its  organization  and  early  methods  was  plainly  illegal; 
but,  thM  in  view  of  its  later  fair  methods  and  practices  and 
of  certain  benefits  to  the  trade  arising  from  the  combination, 
a  dissolution  was  not  conducive  to  the  public  interest.  It 
likened  the  case  to  that  of  the  Harvester  company.  The 
Court  retained  jurisdiction,  but  refrained  from  entering  a 
final  decree  in  the  hope  that  before  a  final  decree  would  be 
requested  Congress  would  substitute  some  other  method  for 
dissolution  to  be  applied  when  a  single  corporation  absorbed 
a  large  part  of  the  production  in  any  one  line.  Later  in  the 
year  the  Government  entered  a  motion  to  have  the  court  dis- 
solve the  company.  The  Court  shortly  afterward  entered  a 
decree  denying  the  petition  for  a  dissolution,  but  retained 
jurisdiction  in  order  to  give  further  relief  if  the  company 
should  abuse  its  power.94  The  Government  has  appealed. 

93  230  Fed.  Rep.  859. 

94  234  Fed.  Rep.  1019. 


CHAPTER  IX 

OTHER  DECREES  AND   DECISIONS   UNDER   THE  TRUST  LAWS 

IT  is  the  purpose  of  this  chapter  to  give  a  brief  state- 
^  merit  of  other  decisions,  decrees  and  judgments  under  the 
trust  laws,  which  have  not  been  noted  in  the  preceding 
pages.  A  few  of  the  more  important  actions  brought  by 
private  parties  are  included  among  those  instituted  by  the 
Government.  The  cases  are  grouped  according  to  the  com- 
modity or  service  involved. 

UNION  LABOR 

It  is  significant  that  the  first  important  application  of 
the  Sherman  law  affected  labor  unions,  an  application  per- 
haps least  intended  by  the  framers  of  the  law  because  it  was 
primarily  enacted  against  capitalists.  Elsewhere  in  this 
study  it  is  shown  that  the  labor  unions  have  been  expressly 
exempted  from  the  operation  of  antitrust  laws  by  recent 
trust  legislation. 

In  1893  a  petition  for  a  restraining  injunction  was  filed 
against  the  Workingmen*s  Amalgamated  Council  of  New 
Orleans,  a  combination  of  workmen,  draymen,  etc.,  who  were 
interfering  with  the  movement  of  traffic  by  threats  and  force 
to  compel  the  employment  of  union  men  only.  An  injunc- 
tion was  immediately  granted.  In  1894  Mr.  Debs  and  others, 
connected  with  the  Pullman  Car  strike,  were  charged  with 
conspiracy  to  obstruct  the  mails  and  interfere  with  inter- 
state commerce.  A  restraining  injunction  was  entered  by  the 
Circuit  Court  and  was  sustained  by  the  Supreme  Court.1 
Later  in  1894  contempt  proceedings  were  brought  against 
Mr.  Debs  and  others  for  disobeying  the  injunction.  The 
defendants  were  found  guilty  and  punished.  In  1908  sey- 
*158  U.  S.  564. 

272 


Other  Decrees  and  Decisions  273 

eral  indictments  were  returned  against  72  laborers,  charg- 
ing a  combination  and  conspiracy  in  restraint  of  trade  and 
commerce.2  Early  in  1911  three  of  the  defendants  were 
found  guilty  and  fines  aggregating  $110  were  imposed.  In 
1911  several  indictments  were  returned  against  members  of 
the  Longshoremen's  Association  for  combining  upon  rules 
and  requirements  governing  the  employment  of  workmen 
loading  vessels  with  lumber.3  The  defendants  plead  guilty 
and  each  was  sentenced  to  four  hours  of  confinement.  In 
1913  a  petition  was  filed  to  enjoin  several  local  unions  of  the 
International  Brotherhood  of  Electrical  Workers  from  inter- 
fering with  the  business  of  the  Postal  Telegraph  Cable  Com- 
pany and  an  injunction  was  granted.4 

Perhaps  the  best  known  labor  union  case  under  the  trust 
laws  is  that  of  Loewe  v.  Lawlor,  better  known  as  the  Dan- 
bury  Hatters'  case.5  This  suit  was  brought  by  Loewe,  a 
manufacturer  of  hats,  against  the  United  Hatters  of  North 
America,  a  labor  organization  forming  a  part  of  the  Ameri- 
can Federation  of  Labor,  to  recover  under  the  Sherman  law 
treble  damages  for  losses  resulting  from  an  attempt  to  force 
Loewe  to  employ  only  union  labor  in  his  factory.  The  unions 
had  forced  seventy  of  the  eighty-two  hat  factories  of  the 
country  to  employ  union  labor.  Following  Loewe's  refusal 
to  unionize  in  1901  the  hatters'  union  in  the  factory  went  out 
on  a  strike  and  induced  the  American  Federation  of  Labor 
to  institute  a  boycott  against  Loewe  and  against  all  hats 
sold  by  the  firm  and  against  all  dealers  handling  the  hats. 
The  boycott  successfully  prevented  the  firm  from  employing 
other  competent  labor  and  from  selling  its  hats.  The  busi- 
ness was  ruined  and  a  loss  of  $80,000  was  claimed.  The  case 
was  contested  before  the  courts  for  more  than  a  decade.6 
It  went  to  the  Supreme  Court  three  times  and  two  jury  trials 
were  held.  The  plaintiffs  were  successful  in  both  trials.  The 
second  trial,  in  1912,  resulted  in  a  judgment  for  $252,130, 
being  the  amount  of  a  trebled  verdict,  interest,  costs  and 

•The    Federal    Antitrust    Laws,    1916,    p.    60. 

•Ibid.,  p.  71. 

4  Ibid.,  p.  80. 

•208  U.  S.  274-309;  235  U.  S.  522;  209  Fed.  Rep.  721. 

•209  Fed.  Rep.  723. 


274  Trust  Dissolution 

counsel  fees.7  The  validity  of  this  verdict  was  affirmed  by 
the  Supreme  Court  in  1915.  8  It  is  interesting  to  compare 
the  amount  of  this  judgment  with  the  smaller  fines  imposed 
upon  large  industrial  combinations. 

COAL  AND  COAL  PRODUCTS 

In  1897  a  petition  was  filed  against  the  Coal  Dealers'  As- 
sociation of  California,  charging  a  combination  to  maintain 
fixed  prices.9  A  temporary  injunction,  later  made  perma- 
nent, was  entered  granting  the  relief  sought.  In  1899  a 
petition  was  filed  against  the  Chesapeake  and  Ohio  Fuel  Com- 
pany and  others,  to  annul  a  contract  and  dissolve  a  combi- 
nation between  producers  and  shippers  of  coal  in  Ohio  and 
West  Virginia.10  A  decree  dissolving  the  contract  and  com- 
bination was  entered  the  following  year.  A  petition  was  filed 
in  1911  against  the  Lake  Shore  and  Michigan  Southern  and 
five  other  railroad  companies  and  three  coal  companies, 
charging  a  combination  to  monopolize  the  production  and 
transportation  of  bituminous  coal  in  and  from  the  Ohio  and 
West  Virginia  fields.11  In  1912  the  Circuit  Court  ordered 
a  dissolution,  but  it  was  not  until  1914  that  a  final  decree 
was  entered  by  this  court  dissolving  the  combination  in  a 
manner  largely  in  accord  with  the  petition  of  the  Govern- 
ment. In  1917  an  indictment  was  returned  against  109  coal 
companies  and  65  individuals,  charging  a  combination  to 
raise  prices  of  West  Virginia  coal.  This  action  is  pending. 

Coal  Products.  —  In  1913  a  petition  was  filed  against  the 
American  Coal  Products  Company,  and  others,  charging 
a  monopolization  of  the  supply  of  coal  tar  and  restraint  of 
trade  in  the  manufacture  and  sale  of  tarred  roofing  felts 
and  other  coal  tar  products.  A  consent  decree  was  immedi- 
ately entered. 


7  209   Fed.  Rep. 

8  235  U.  S.  522. 

•The   Federal   Antitrust   Laws,   1916,  p.   50. 

10  Ibid.,  p.  50. 

"Ibid.,  p.  68;  203  Fed.  Rep.  295. 


Other  Decrees  and  Decisions  £75 


FOODSTUFFS  AND  PRODUCE 

Salt. — A  petition  was  filed  in  1902  to  enjoin  the  Federal 
Salt  Company,  and  others,  from  combining  to  suppress  com- 
petition in  the  manufacture  and  sale  of  salt  in  the  western 
states.12  A  restraining  injunction  was  entered  the  same 
year. 

Meat. — An  indictment  returned  in  1906  against  an  al- 
leged combination  in  Arizona  for  controlling  prices  and  re- 
stricting competition  in  the  sale  of  meats  resulted  in  a  ver- 
dict of  guilty  as  to  one  individual  defendant,  and  a  fine  of 
$1,000  was  collected. 

Sugar. — The  early  history  of  the  Sugar  Trust  and  the 
failure  of  the  Knight  decision  to  condemn  it  in  1894  has  been 
shown  in  previous  pages.  Since  1894  the  American  Sugar 
Refining  Company  and  its  controlled  companies  have  re- 
tained a  dominant  position  in  the  sugar  refining  industry, 
but  its  relative  proportion  of  the  business  has  not  remained 
nearly  so  large  as  it  was  in  that  year.  In  1909  an  indictment 
was  returned  against  the  American  Sugar  Refining  Com- 
pany, and  others,  but  the  trial  resulted  in  a  verdict  of  dis- 
agreement in  1912. 13  In  1910  a  petition  was  filed  to  dis- 
solve the  combination  of  the  above  defendants.  After  the 
taking  of  testimony  for  the  case  had  been  concluded,  the 
court  ordered  the  hearing  to  be  postponed  until  the  Supreme 
Court  entered  decisions  in  the  Harvester  and  Steel  cases. 
It  is  already  twenty-three  years  since  the  Knight  decision 
was  handed  down  and  it  will  probably  be  several  years  more 
before  a  final  decision  is  reached  in  the  present  case. 

Groceries. — A  petition  was  filed  in  1905  to  dissolve  the 
Nome  Retail  Grocers'  Association  of  Alaska,  which  was 
charged  with  fixing  prices  and  suppressing  competition.14 
A  consent  decree  was  entered  the  following  year  dissolving 
the  combination.  In  1910  a  petition  was  filed  against  the 
Southern  Wholesale  Grocers'  Association,  charging  a  com- 

13  The   Federal   Antitrust   Laws,    1916,   p.   51. 
13  Ibid.,  pp.  61,  65. 
"Ibid.,  p.  52. 


276  Trust  Dissolution 

bination  to  regulate  the  prices  and  the  marketing  of  gro- 
ceries.15 This  was  a  combination  of  wholesale  dealers  and 
jobbers  and  it  used  various  unfair  methods,  including  black 
lists.  A  decree  was  entered  the  following  year  enjoining  the 
Association  and  its  members  from  doing  any  of  the  acts  com- 
plained of,  including:  boycotting  of  manufacturers  selling 
to  non-members;  preventing  sales  to  non-members;  using 
threats  or  coercion ;  accepting  rebates  or  bonuses  from 
manufacturers  for  maintaining  prices ;  conspiring  to  raise 
or  fix  prices;  entering  into  any  agreements  which  interfere 
with  the  free  flow  of  commerce.16  The  Association  was  al- 
lowed to  continue  for  social  and  other  purposes  not  en- 
joined. In  1913  the  Association  and  three  individual  mem- 
bers were  held  guilty  of  contempt  of  court  through  viola- 
tion of  the  terms  of  the  above  decree  and  fines  aggregating 
$5,500  were  imposed.17 

Butter  and  Eggs. — In  1910,  a  petition  was  filed  against 
the  Chicago  Butter  and  Egg  Board,  charging  it  with  arbi- 
trarily fixing  and  controlling  the  sale  prices  of  butter  and 
eggs  throughout  a  large  section  of  the  country.18  A  decree 
granting  the  relief  sought  was  entered  in  1914.  In  1912,  a 
petition  was  filed  against  the  Elgin  Board  of  Trade,  repre- 
senting the  interests  of  a  number  of  large  centralizing  con- 
cerns, charging  a  combination  to  restrain  trade  and  arbitrar- 
ily fix  prices  of  butter  and  butter  fat  throughout  the  coun- 
try.19 A  decree  granting  the  relief  was  entered  without 
contest  in  1914. 

Rendering  Materials. — Several  indictments  were  re- 
turned in  1912  against  John  Reardon  and  Sons  Company 
and  the  Consolidated  Rendering  Company,  charging  a  mo- 
nopolization of  trade  and  commerce  in  rendering  materials, 
such  as  tallow,  and  oleo  oil.20  In  the  following  year  the 
corporations  were  fined  $8,000. 

15  The  Federal  Antitrust  Laws,  1916,  pp.  63,  78. 

18  Trust  Laws  and  Unfair  Competition,  1916,  pp.  88,  490,  492,  715,  723. 

"207  Fed.  Rep.  434. 

18  The  Federal  Antitrust  Laws,  1916,  pp.  63,  67. 

19  Ibid.,  p.  77. 
80  Ibid.,  p.  64. 


Other  Decrees  and  Decisions  £7*7 

Milk. — Two  indictments  were  returned  in  1911  against 
Isaac  Whiting  and  others,  charging  a  combination  to  re- 
strain trade  in  milk  throughout  the  New  England  States.21 
Demurrer  was  overruled  in  1914  and  certain  of  the  defend- 
ants entered  pleas  of  no  contest,  but  the  case  has  been 
continued  pending  the  disposition  of  the  action  against  the 
remaining  defendants. 

Flour. — An  indictment  returned  in  the  Circuit  Court  of 
Oklahoma  in  1911  against  the  Hunter  Milling  Company,  and 
others,  charging  a  conspiracy  to  restrain  trade  in  flour, 
resulted  in  a  verdict  of  guilty  and  fines  of  $2,000  were  im- 
posed.22 

Confections. — In  1912,  a  petition  was  filed  against  the 
Philadelphia  Jobbing  Confectioners'  Association  and  others, 
charging  restraint  of  commerce  in  candies  and  confections.23 
A  consent  decree  was  immediately  entered  enjoining  the  de- 
fendants, among  other  things,  from :  boycotting  manufactur- 
ers who  sell  to  non-members ;  preventing  manufacturers  from 
selling  freely  in  the  open  market;  publishing  white  or  black 
lists ;  inducing  manufacturers  not  to  sell  to  retailers  or  deal- 
ers not  members  of  the  association. 

Produce. — An  indictment  was  returned  in  1913  against 
Page  and  fourteen  others  of  the  Produce  Merchants'  Ex- 
change, of  Portland,  charging]  an  unlawful  control  of  the 
purchase  and  sale  of  about  90  percent  of  the  produce,  fruit 
and  vegetables  shipped  into  the  State  of  Oregon.24  The  de- 
fendants immediately  plead  guilty  and  fines  of  $8,450  were 
collected.  A  similar  indictment  was  returned  in  1914  against 
thirty-one  commission  merchants,  charging  a  combination 
to  fix  prices  arbitrarily  for  the  sale  of  produce  in  the  Dis- 
trict of  Columbia.25  No  contest  was  made  and  fines  of  $650 
were  imposed. 

Grain. — In  1913,  a  petition  was  filed  against  the  Board 
of  Trade  of  the  city  of  Chicago  and  others,  charging  that 

"The  Federal  Antitrust  Laws,  1916,  pp.  66-7. 
*  Ibid.,  p.  69. 
"Ibid.,  p.  77. 

24  Ibid.,  p.  78. 

25  Ibid.,  p.  86. 


278  Trust  Dissolution 

the  price  of  grain  arriving  at  times  when  the  Board  is  not 
in  session  was  arbitrarily  determined.26  The  Circuit  Court 
entered  a  decree  in  1915  in  favor  of  the  Government.  The 
defendants  have  appealed  to  the  Supreme  Court. 

Breakfast  Food. — In  1912,  a  petition  was  filed  against 
the  Kellogg  Toasted  Corn  Flake  Company  charging  that  the 
company's  policy  of  fixing  and  enforcing  resale  prices  on 
corn  flakes  tended  to  restrain  and  monopolize  commerce  in 
this  product.27  The  Kellogg  Company  sold  its  flakes  to 
jobbers  at  a  uniform  price  of  $2.50  per  case  of  36  cartons, 
and  rigidly  refused  to  sell  to  a  j  obber  who  failed  to  keep  his 
agreement  to  sell  at  a  fixed  uniform  price  in  each  district, 
ranging  from  $2.75  upwards  per  case.  To  enforce  fixed 
prices  upon  the  retail  dealers  there  was  printed  on  each  car- 
ton a  statement  that  to  retail  at  less  than  ten  cents  per 
package  was  a  violation  of  the  conditions  of  sale  and  an  in- 
fringement on  patent  rights,  subjecting  the  vendor  to  prose- 
cution. The  patent  referred  to  was  on  the  carton  or  pack- 
age. The  Circuit  Court  in  1915  declared  this  practice  to  be 
unlawful  and  held  that  the  patent  claims  were  used  to  evade 
the  trust  laws.28  The  Kellogg  Company  consented  to  a 
final  decree  enjoining  the  practice. 

The  Cream  of  Wheat  Company,  which  manufactures 
the  well-known  breakfast  food  of  that  name,  announced  in 
1913  its  intention  to  refuse  to  sell  to  consumers,  retailers, 
or  chain  and  department  stores,  and  to  sell  only  to  jobbers 
who  did  not  ignore  any  request  made  by  the  company  for 
its  own  benefit  or  for  that  of  the  trade  at  large  or  of  custom- 
ers. The  company  requested  the  jobbers  and  retail  deal- 
ers to  maintain  the  resale  prices  recommended  by  it.  The 
price  to  jobbers  was  fixed  at  $4.10  per  case  of  36  cartons  in 
less  than  carload  lots,  and  $3.95  in  carload  lots.  The  job- 
bers were  requested  to  resell  at  $4J50  per  case  and  the  re- 
tail dealers  at  14  cents  per  package.  The  Great  Atlantic 
and  Pacific  Tea  Company,  owning  a  large  chain  of  retail 
stores,  secured  the  concession  of  buying  at  wholesale  rates 

"The  Federal  Antitrust  Laws,  1916,  p.  79. 

"Ibid.,  p.  82. 

28  222  Fed.  Rep.  725. 


Other  Decrees  and  Decisions  279 

with  the  understanding  that  it  observe  the  14  cent  resale 
rate.  In  1915,  the  Tea  company  reduced  the  resale  rate 
in  certain  of  its  stores  to  12  cents.  Thereupon,  the  company 
refused  to  sell  to  the  Tea  company  and  requested  its  agents 
not  to  sell  to  the  Tea  company  at  any  price.  The  Cream  of 
Wheat  Company  was  not  able  to  prevent  all  sales  to  the  Tea 
company,  but  the  latter  could  not  secure  carload  rates  from 
the  jobbers  and  hence  could  not  sell  at  a  12  cent  rate.  The 
Tea  company  sought  an  injunction  under  the  terms  of  the 
Clayton  Act  on  the  ground  that  the  discrimination  of  the 
Cream  of  Wheat  Company  and  its  attempt  to  induce  the 
jobbers  to  discriminate  constituted  a  violation  of  the  Sher- 
man law  and  unlawful  discrimination  under  the  Clayton  Act. 
Both  of  the  lower  courts  29  denied  an  injunction  and  the 
case  has  gone  back  to  the  Circuit  Court  for  trial. 

LUMBER  AND  ITS  PRODUCTS 

Lumber. — An  indictment  was  returned  in  1906  against 
the  F.  A.  Amsden  Lumber  Company,  and  others,  for  re- 
stricting competition  and  fixing  prices  in  the  sale  of  lum- 
ber.30 In  the  following  year  pleas  of  guilty  were  entered 
and  fines  aggregating  $2,000  were  collected.  In  1911,  a  pe- 
tition was  filed  against  the  Eastern  States  Retail  Lumber 
Dealers  Association,  alleging  a  conspiracy  to  restrain  trade 
through  the  use  of  black  lists  and  trade  agreements.31  The 
object  of  these  lists,  known  as  Official  Reports,  was  to  dis- 
courage wholesalers  and  jobbers  from  selling  directly  to 
consumers  by  threatening  to  boycott  those  who  did.  The 
Circuit  Court,  in  1913,  enjoined  the  use  of  any  such  lists 
and  agreements.  This  decree  was  affirmed  by  the  Supreme 
Court  in  1914. 32  Several  other  petitions  which  are  still 
pending  were  filed  in  1911  against  wholesale  and  retail  deal- 
ers' associations,  alleging  restraint  of  trade  in  lumber  and 
its  products.33 

29  224  Fed.  Rep.  566;  227  Fed.  Rep.  46. 

80  The  Federal  Antitrust  Laws,  1916,  p.  53. 

81  Ibid.,  p.  66. 

83  234  U.  S.  600. 

83  The  Federal  Antitrust  Laws,  1916,  pp.  69,  70. 


280  Trust  Dissolution 

Turpentine. — In  1907,  the  Atlantic  Investment  Com- 
pany and  three  other  corporations  were  indicted  for  main- 
taining a  combination  in  restraint  of  trade  and  commerce 
in  the  manufacture  and  sale  of  turpentine.34  In  the  same 
year  pleas  of  guilty  were  entered  and  fines  aggregating 
$30,000  were  imposed. 

Furniture. — In  1907,  an  indictment  was  returned  against 
the  American  Seating  Company,  and  other  corporations, 
charging  a  combination  to  restrain  trade  in  the  manufac- 
ture and  sale  of  school  and  church  furniture.35  The  de- 
fendant corporations,  with  one  exception,  entered  pleas  of 
guilty  and  fines  aggregating  $43,000  were  collected.  At  the 
same  time  a  civil  suit  was  brought  against  the  above  de- 
fendants. No  contest  was  made  and  a  decree  granting 
relief  was  entered. 

Shingles. — In  1902  the  Circuit  Court  of  Appeals  de- 
clared illegal  an  association  of  manufacturers  and  dealers 
in  red-cedar  shingles  formed  in  Washington.  This  was  the 
only  state  producing  such  shingles  and  more  than  80  percent 
of  the  output  was  sold  and  delivered  in  other  states.  The 
association  limited  the  output  and  fixed  the  price  of  sale. 
A  dealer  brought  suit  under  the  Sherman  law  to  recover  dam- 
ages sustained  from  the  acts  of  the  association.  On  appeal 
the  Court  held  the  association  to  be  an  illegal  combination 
and  permitted  action  to  recover. 

PAPER  AND  PUBLISHING  SUPPLIES 

Paper. — In  1904,  a  petition  was  filed  against  the  Gen- 
eral Paper  Company  and  twenty-three  other  corporations 
engaged  in  the  manufacture  and  sale  of  paper,  alleging  a 
conspiracy  to  restrain  trade  and  commerce.36  In  1906,  a 
decree  was  entered  dissolving  the  combination  and  granting 
relief  through  injunction.  In  1908  an  indictment  was  re- 
turned against  John  H.  Parks,  and  others,  charging  a  com- 
bination to  restrain  trade  in  the  manufacture  and  sale  of 

"The  Federal  Antitrust  Laws,  1916,  p.  58. 
86  Ibid. 
"Ibid.,  p.  51. 


Other  Decrees  and  Decisions  281 

paper.37  The  defendants  immediately  plead  guilty  and  fines 
aggregating  $50,000  were  collected.  In  1909,  a  petition 
was  filed  against  the  Allen  Brothers  Company,  and  other 
paper  manufacturers,  charging  a  combination — the  "F.  and 
M.  Association" — to  restrain  trade  and  commerce  in  the 
manufacture,  sale  and  distribution  of  fibre,  manila  and  other 
papers.38  A  decree  dissolving  the  association  and  enjoining 
the  members  from  continuing  in  it  was  entered  in  the  same 
year.  An  indictment  was  also  returned  in  that  year  against 
the  Albia  Box  &  Paper  Company,  and  other  manufacturers, 
for  combining  to  restrain  trade  in  paper  board.39  All  the 
defendants  plead  guilty  and  fines  aggregating  $57,000  were 
collected.  In  1911  another  indictment  was  returned  against 
the  president  of  the  company,  and  others,  charging  a  com- 
bination and  conspiracy  to  restrain  commerce  in  paper 
board.  No  defense  was  made  and  fines  aggregating  $16,- 
000  were  imposed. 

During  1916  the  prices  of  newsprint  paper  were  almost 
doubled  and  in  some  cases  quadrupled.40  The  advance  in 
prices  led  to  an  investigation  by  the  Federal  Trade  Com- 
mission which  found  that  there  was '  no  shortage  but  that 
certain  paper  manufacturers  were  attempting  to  secure 
large  gains  through  a  control  over  the  supply.  In  March 
1917,  the  Trade  Commission  accepted  a  proposal  of  the  pa- 
per manufacturers  to  fix  the  price  of  newsprint  paper,  but 
this  did  not  deter  the  Government  from  bringing  action  under 
the  trust  laws.  In  the  following  month  an  indictment  was 
secured  against  seven  men,  five  of  whom  were  officials  of  the 
Newsprint  Manufacturers  Association,  on  the  charge  of 
combining  to  control  the  supply  and  price  of  newsprint  pa- 
per. 

Publishing  Supplies. — In  1912,  a  petition  was  filed 
against  the  Central-West  Publishing  Company,  and  others, 
charging  unfair  competition  with  intent  to  restrain  and  mo- 
nopolize trade  and  commerce  in  plate  and  ready-print  pa- 


"The  Federal  Antitrust  Laws,  1916,  p.  60. 
"Ibid.,  p.  61. 


» Ibid.,  pp.  61,  66. 

"The  Chronicle,  V.  104,  p.  1887. 


282  Trust  Dissolution 

per.41  Some  of  the  unfair  methods  are  shown  by  the  consent 
decree  entered  the  same  year.  This  enjoined  the  defendants 
from  defaming  and  disparaging  competitors'  goods  and  busi- 
ness ;  selling  below  cost  or  at  discriminating  prices  and  terms 
with  intent  to  drive  out  competitors ;  operating  bogus  inde- 
pendents ;  using  threats  or  inducing  breach  of  contracts  with 
competitors;  retaining  plate  metal  or  other  property  be- 
longing to  competitors.  In  1915  contempt  proceedings  were 
instituted  for  alleged  violations  of  the  above  decree. 

Wall  Paper.— In  1909  the  Supreme  Court  decided  the 
case  of  the  Continental  Wall  Paper  Company.  This  com- 
pany was  the  selling  agency  of  a  combination  consisting 
of  more  than  30  manufacturers  of  wall  paper  and  control- 
ling 98  percent  of  such  output  and  sales.  It  had  perhaps 
the  most  complete  monopoly  possible  of  a  commodity  in 
general  use  and  it  greatly  increased  prices  as  soon  as  it  was 
formed.  Contracts  which  required  exclusive  dealing  and 
which  fixed  the  prices  were  forced  on  jobbers.  The  suit  was 
brought  against  a  jobber  who  refused  payment  on  purchases 
made  under  such  a  contract  on  the  ground  that  the  contract 
was  part  of  a  combination  in  violation  of  the  Sherman  law. 
The  Court  held  that  the  company  could  not  recover.42 

MISCELLANEOUS  COMBINATIONS 

Elevators. — A  petition  filed  in  1906  against  the  Otis 
Elevator  Company  and  a  number  of  other  similar  corpora- 
tions resulted  in  a  decree,  without  contest,  enjoining  the 
defendants  from  conspiring  and  combining  to  restrain  trade 
in  the  manufacture  and  sale  of  elevators.43 

Drugs. — A  petition  was  filed  in  1906  against  the  Na- 
tional Association  of  Retail  Druggists,  charging  a  combina- 
tion in  restraint  of  trade  in  the  sale  of  drugs  and  proprietary 
medicines.44  A  consent  decree  granting  the  relief  sought 
was  entered  the  following  year. 

Umbrella  Materials. — In   1907   the    National   Umbrella 

"The  Federal  Antitrust  Laws,  1916,  pp.  75-6;  Trust  Laws  and  Un- 
fair Competition,  1916,  pp.  370,  479-81,  485,  492,  494-5. 

42  212  U.  S.  227. 

43  The  Federal  Antitrust  Laws,  1916,  p.  53. 
"Ibid.,  p.  54. 


Other  Decrees  and  Decisions 

Frame  Company,  and  others,  plead  guilty  under  an  indict- 
ment charging  a  conspiracy  to  restrain  trade  and  com- 
merce in  the  manufacture  and  sale  of  umbrella  materials.45 
Fines  aggregating  $3,000  were  collected. 

Tobacco. — In  1910,  an  indictment  was  returned  against 
John  S.  Steers  and  eleven  other  individuals  charging  a  con- 
spiracy to  restrain  trade  in  tobacco.46  This  is  known  as  the 
"Night  Rider"  case.  In  1910  eight  of  the  defendants  were 
declared  guilty  and  fines  aggregating  $8,500  were  imposed. 
In  1912  the  sentences  were  commuted  by  the  President  to 
payment  of  costs  of  suit. 

Window  Glass. — In  1910,  an  indictment  was  returned 
against  the  Imperial  Window  Glass  Company,  and  others, 
charging  a  combination  and  conspiracy  to  enhance  the  price 
of  window  glass.47  In  the  same  year  fines  aggregating 
$10,000  were  collected. 

Bill  Posters. — In  1912,  a  petition  was  filed  against  the 
Associated  Bill  Posters  and  Distributors  of  the  United 
States  and  Canada,  and  others,  charging  a  combination  to 
restrain  trade  and  commerce  in  posters.48  The  organization 
was  composed  of  bill  posters  owning  bill  boards  in  several 
thousand  of  the  most  desirable  towns  throughout  the  coun- 
try. It  aimed  to  control  this  business  and  fix  prices,  and 
it  agreed  to  exclude  from  its  service  and  billboards  all  who 
did  not  exclusively  deal  with  the  organization  in  towns  where 
it  was  represented.  Seven  or  eight  corporations  and  persons 
were  given  the  exclusive  right  to  solicit  poster  advertising 
and  the  members  paid  the  solicitors  one-sixth  of  the  proceeds 
derived  from  the  business  brought  to  them  and  agreed  to 
patronize  no  other  solicitors.  Penalties  were  provided  for 
violating  the  agreements.  As  a  result  the  combination  ac- 
quired control  of  practically  all  the  posting  of  national  ad- 
vertising in  several  thousand  cities  and  towns.  A  decision 
favorable  to  the  Government  was  entered  by  the  Circuit 
Court  in  1916,  but  the  form  of  decree  is  still  under  con- 
sideration. 

Magazines. — In  1911,  a  petition  was  filed  against  the 

45  The  Federal  Antitrust  Laws,  1916,  p.  57. 

"Ibid.,  pp.  61,  62. 

"Ibid.,  p.  62. 

"235  Fed.  Rep.  540-2. 


284  Trust  Dissolution 

Periodical  Clearing  House,  and  others,  known  as  the  Maga- 
zine Trust.49  The  Circuit  Court  trial  resulted  in  an 
equally  divided  court  and  the  case  was  ordered  dismissed 
in  1913. 

Jewelry. — In  1913,  a  petition  was  filed  charging  the  Na- 
tional Wholesale  Jewelers'  Association,  and  others,  with 
conspiring  to  eliminate  all  competition — except  as  between 
wholesalers  and  jobbers — for  the  trade  of  all  classes  of  re- 
tail dealers  of  jewelry  and  its  products.50  The  case  was 
not  contested  and  a  decree  was  entered  in  the  following 
year  enjoining  the  defendants,  among  other  things,  from 
agreeing  not  to  purchase  from  manufacturers  who  sold  to 
jobbers,  retail  dealers,  or  others  not  recognized  by  the 
association;  from  preventing  sales  or  purchases  of  jewelry 
by  any  one;  from  boycotting;  and  from  using  white  or  black 
lists. 

Thread. — In  1913,  a  petition  was  filed  to  dissolve  the 
combination  monopolizing  the  thread  industry.  No  con- 
test was  made  by  the  defendants  and  in  the  following  year 
a  decree  was  entered  dissolving  the  combination  and  enjoin- 
ing the  use  of  certain  unfair  methods  of  competition,  among 
which  were  price  cutting,  either  directly  or  through  offer- 
ing a  bonus  or  gift  in  the  form  of  free  goods  or  samples,  ex- 
cepting samples  given  in  good  faith  and  not  exceeding  five 
percent  of  the  amount  of  the  purchases  at  any  one  time; 
price  discrimination  through  secret  rebates  or  other  secret 
inducement ;  using  fighting  brands ;  enforcing  exclusive  con- 
tracts with  jobbers  or  dealers;  discriminating  against  any 
who  handle  the  goods  of  a  competitor;  defaming  and  dis- 
paraging competitors  or  their  goods ;  using  any  black  lists 
stating  with  whom  trade  shall  or  shall  not  be  carried  on.51 

Telephone  Service. — In  1913,  a  petition  was  filed  against 
the  American  Telephone  and  Telegraph  Company,  seeking 
to  destroy  a  monopoly  of  the  telephone  business  on  the  Pa- 
cific Coast.52  After  part  of  the  testimony  was  taken  the 

49  The  Federal  Antitrust  Laws,  1916,  p.  68. 

80  Ibid.,  p.  83;  Trust  Laws  and  Unfair  Competition,  1916,  pp.  489, 
490,  492,  728. 

61  Trust  Laws  and  Unfair  Competition,  1916,  pp.  479-492. 
"The  Federal  Antitrust  Laws,  1916,  p.  83. 


Other  Decrees  and  Decisions  285 

defendants  agreed  to  the  demands  of  the  Government.  The 
company  agreed  to  sell  its  large  minority  stock  holdings 
in  the  Western  Union  Telegraph  Company  and  to  acquire 
no  control  of  additional  independent  telephone  properties, 
except  under  certain  conditions,  and  to  give  independent  com- 
panies toll  rights  over  its  long  distance  lines.  The  net  profits 
of  the  company  in  1915  amounted  to  about  $48,000,000,  or 
over  twelve  percent  on  its  outstanding  capital  stock. 

Wringers. — In  1914,  an  indictment  was  returned  against 
the  American  Wringer  Company,  charging  a  combination  to 
restrain  trade  and  commerce  in  clothes  wringers.53  No  con- 
test was  made  and  fines  aggregating  $6,000  were  imposed. 

Oil  Containers. — In  1915,  a  petition  was  filed  against  the 
S.  F.  Bowser  Company,  and  others,  charging  a  combination 
to  restrain  and  monopolize  trade  and  commerce  in  pumps, 
tanks  and  outfits  for  the  storage  and  handling  of  gasoline 
and  other  inflammable  liquids.  A  consent  decree  granting  the 
relief  sought  has  been  entered.54 

Shipping. — In  1912,  several  indictments  were  returned 
in  Alaska  against  a  combination  in  the  transportation  busi- 
ness, including  wharves,  railroads  and  steamships.55  One 
indictment  charged  a  combination  of  the  wharves  at  Skag- 
way  and  monopolization  of  the  wharfinger  business.  Dis- 
agreement of  the  jury  in  1913  was  followed  by  pleas  of 
guilty  by  the  corporations  and  fines  aggregating  $19,500 
were  imposed.  Another  indictment  charged  a  monopolization 
of  the  steamship  transportation  between  Puget  Sound  and 
British  Columbia  ports  in  the  south  and  Skagway  in  the 
north.  Pleas  of  guilty  by  the  corporations  in  1914  resulted 
in  fines  of  $8,500.  In  1912,  petitions  were  filed  by  the 
Government  against  two  other  shipping  combinations — the 
American-Asiatic  Steamship  Company  et  al.,  and  the  Prince 
Line  et  al.56  Both  cases  were  decided  adversely  to  the  Gov- 
ernment in  1915  and  appeals  have  been  made. 

Plumbers'  Supplies. — An  indictment  was  returned  in  the 
District  Court  of  Alabama  in  1908,  charging  a  combination 

63  The  Federal  Antitrust  Laws,  1916,  p.  85. 

"Ibid.,  p.  88. 

*  Ibid.,  pp.  72-3;  228  U.  S.  87,  56  Ibid.,  pp.  74-5. 


286  Trust  Dissolution 

to  restrain  trade  and  commerce  in  the  manufacture  and  sale 
of  plumbers'  supplies.57  Pleas  of  guilty  were  entered  in 
1910  and  fines  aggregating  $265  were  imposed.  In  1911, 
a  petition  was  filed  against  the  Pacific  Coast  Plumbing  Sup- 
ply Association,  charging  restraint  of  trade  in  plumbing 
supplies.58  This  association  of  jobbers  and  dealers  exten- 
sively used  a  "Blue  Book"  to  inform  its  members  as  to  which 
of  the  manufacturers  confined  their  sales  to  association  mem- 
bers. A  decree  was  entered  in  1912  enjoining  the  acts  com- 
plained of,  including  the  use  of  black  lists  or  lists  of  a  similar 
character,  boycotting  manufacturers,  forming  agreements 
to  restrict  the  "free  and  unrestrained"  flow  of  commerce.59 
In  1914  an  indictment  was  returned  in  the  federal  courts 
of  Iowa  against  thirty-five  members  of  the  National  As- 
sociation of  Master  Plumbers,  charging  a  combination  to 
restrain  trade  for  the  purpose  of  preventing  manufactur- 
ers and  dealers  in  plumbing  supplies  from  selling  directly  to 
consumers.60  The  members  of  the  association,  which  was 
national  in  scope,  agreed  to  patronize  and  to  purchase  from 
only  those  manufacturers  and  dealers  who  limited  their  sales 
to  members  of  the  association,  and  they  sought  the  aid  of 
white  and  black  lists  to  carry  out  their  policy.  Following 
a  verdict  of  guilty  for  all  the  defendants  in  1915,  four  of  the 
defendants  were  fined  $3,000  by  the  Court,  and  a  writ  of 
error  granted  to  them.  Proceedings  against  the  remaining 
defendants  ceased  pending  an  appeal  on  the  writ  of  error. 
In  the  following  year  a  decision  was  given  sustaining  the 
judgment  of  the  lower  court.61  Similar  proceedings  were 
instituted  in  1914  against  other  members  of  the  association 
in  the  federal  courts  of  Utah,  but  prosecution  was  delayed 
pending  a  decision  in  the  above  case. 

"The  Federal  Antitrust  Laws,   1916,  p.   59. 

68  Ibid.,  p.  71. 

w  Trust  Laws  and  Unfair  Competition,  1916,  pp.  489  if.  729. 

fl°237  Fed.  Rep.  8. 

"Ibid, 


CHAPTER  X 

THE    EFFECT    OF    ANTITRUST    PROCEEDINGS 

MORE  than  a  quarter  of  a  century  has  passed  since  the 
enactment  of  the  Sherman  law  in  1890.  During  the 
first  twenty-five  years,  or  until  March  1915,  eighty-four  in- 
dictments were  returned  under  the  criminal  section  of  this 
law.  In  six  of  these  a  verdict  of  guilty  was  returned;  in 
five  the  verdict  was  not  guilty;  in  ten  demurrers  were  sus- 
tained or  indictments  quashed;  in  twenty-eight  pleas  either 
of  guilty  or  of  no  contest  were  entered,  and  sentences  of 
fine  or  imprisonment  were  imposed,  but  in  only  one  case  was 
a  prison  sentence  served,  and  in  this  the  defendants  had 
plead  guilty.  Several  other  cases  in  which  prison  sentences 
were  imposed  were  pending  on  appeal.  The  Government 
dismissed  seventeen  cases,  and  eighteen  remained  to  be  dis- 
posed of.  There  were  also  a  number  of  prosecutions  for 
criminal  contempt  for  violating  injunctions  of  the  court, 
and  in  several  cases  sentences  of  fine  or  imprisonment  were 
imposed. 

During  the  same  period  eighty-seven  civil  suits  in  equity 
were  filed  under  the  law.  While  many  of  these  were  peti- 
tions for  injunctions,  the  most  important  were  petitions  for 
dissolution.  In  twenty-nine  cases  judgments  were  entered 
in  favor  of  the  Government ;  in  thirteen  adverse  decisions 
were  rendered,  or  the  cases  were  dismissed  by  the  Govern- 
ment ;  in  fifteen  consent  decrees  were  entered ;  and  thirty  were 
still  pending.  Only  one  suit  was  brought  to  condemn  prop- 
erty seized  under  the  act  while  in  transportation,  and  this 
one  was  dismissed  by  the  Government. 

Many  private  actions  were  also  brought  under  the  law. 
There  were  fifty-three  suits  to  recover  treble  damages  under 
the  terms  of  the  act  but  in  only  a  small  proportion  were 
damages  recovered.  The  recovery  in  the  Danbury  Hatters' 

287 


288  Trust  Dissolution 

case  is  the  best  known.  This  section  of  the  act  has  proved  to 
be  very  inadequate.  There  were  also  seventy-four  suits 
between  private  parties  involving  contracts  with  combinations 
alleged  to  be  illegal,  license  agreements  under  the  patent 
laws,  claims  for  damages  growing  out  of  covenants  not  to 
compete  with  the  purchaser  of  a  business,  and  contracts  to 
enforce  fixed  resale  prices,  which  required  an  interpretation 
or  application  of  the  act.  In  fifty-one  cases  the  law  was 
urged  in  defence  but  in  only  sixteen  was  it  successfully 
pleaded;  in  ten  injunctive  relief  or  damages  were  claimed 
under  the  act,  but  in  only  three  did  the  plaintiff  receive  a 
judgment;  four  decisions  did  not  involve  the  act;  and  in 
nine  cases  private  parties  sought  in  equity  proceedings,  in- 
junctions to  prevent  alleged  injury  to  themselves,  but  in  each 
case  the  court  held  that  such  action  could  be  brought  only 
by  the  Government. 

Many  other  proceedings  instituted  under  the  act,  or 
finally  disposed  of  since  March  1915,  are  given  in  earlier 
chapters,  but  are  not  included  in  this  summary  because  data, 
concerning  some  of  the  cases  is  not  available. 

The  positive  results  obtained  from  prosecutions  have 
been  quite  unsatisfactory,  but  improvement  is  gradually  be- 
ing realized.  A  number  of  powerful  combinations,  it  is  true,, 
have  been  dissolved,  but  as  far  as  it  is  possible  to  judge,  the 
consuming  public  has  not  yet  greatly  profited  by  their  dis- 
solution. Many  old  combinations  have  been  allowed  to  con- 
tinue and  many  more  new  ones  have  been  formed.  Grossly 
unfair  restraints  of  trade  continue  to  be  practiced.  Yet 
positive  progress  has  been  made  through  the  more  rigorous 
trust  prosecution  of  the  past  decade  and  this  increased 
activity,  together  with  the  legislative  provisions  of  1914, 
give  the  promise  of  more  effective  control  over  the  conduct 
of  large  combinations.  While  much  uncertainty  as  to  what 
is  and  what  is  not  permissible  under  the  trust  laws  has  been 
removed,  much  still  remains.  In  1911  it  was  even  doubtful 
whether  the  Standard  Oil  and  American  Tobacco  companies 
would  finally  be  condemned,  although  the  monopolistic  char- 
acter of  these  great  trusts  was  fully  known.  The  decisions 
of  these  cases  in  that  year,  and  of  others  handed  down  since, 


The  Effect  of  Antitrust  Proceedings  289 

have  helped  to  show  that  no  absolute  or  arbitrary  standards 
would  be  followed,  but  no  rule  has  been  developed  by  the 
courts  to  determine  what  constitutes  sufficient  violation  of 
the  trust  laws  to  require  dissolution,  whether  the  mere  at- 
tainment of  dominant  size  or  power  in  an  industry,  and  if  so 
what  is  the  limitation;  or  whether  the  abuse  of  such  size  or 
power  is  also  essential,  and  if  so,  when  this  is  reached.  As 
a  result  the  final  disposition  of  such  cases  as  the  Steel,  Har- 
vester, and  American  Can,  cannot  be  anticipated,  although 
the  facts  in  these  cases  are  pretty  well  known. 

Until  about  1900,  ten  years  after  the  passage  of  the  Sher- 
man law,  the  trust  problem  was  usually  regarded  as  a  state 
problem.  Since  then  it  has  become  distinctly  recognized  as 
a  national  problem  requiring  federal  jurisdiction.  It  is  sig- 
nificant that  the  first  important  application  of  the  anti-trust 
act  fell  upon  the  labor  unions,  perhaps  the  least  of  all  or- 
ganizations designed  to  come  under  the  operation  of  this 
law  which  was  primarily  enacted  against  capitalists.  The 
next  important  application  affected  the  railroads,  another 
class  of  organizations,  which  it  is  doubtful  if  the  framers 
intended  should  come  within  the  scope  of  the  law.  Not  until 
near  the  end  of  the  first  decade  was  an  important  industrial 
trust  condemned  under  the  act  and  very  few  of  these  or- 
ganizations were  dissolved  during  the  second  decade.  Most 
of  the  important  dissolutions  occurred  since  1910. 

No  classification  of  trusts  has  ever  been  made  by  the 
courts  or  Congress  save  the  legal  one,  which  distinguishes 
between  corporations  engaged  in  Ultra-state  and  interstate 
commerce.  During  the  first  decade  the  meaning  of  intra- 
state  commerce  was  extended  as  far  as  possible,  as  in  the 
Knight  case,  but  since  then  the  tendency  has  been  to  regard 
all  commerce  as  being  interstate  within  the  meaning  of  the 
act.  No  classes  of  combinations  were  exempted  by  the 
courts  from  the  operation  of  the  Sherman  law,  except  to 
some  extent  those  of  patents  and  of  associations  not  organ- 
ized for  profit.  Pools,  railroad  combines,  labor  unions, 
trade  associations,  mergers,  holding  companies,  and  also 
individuals  were  regarded  as  subject  to  its  control. 

The  Supreme  Court,  following  the  spirit  of  Congress  and 


290  Tru$t  Dissolution 

of  the  common  law,  has  always  regarded  competition  as  bene- 
ficial and  as  a  sufficient  regulator  of  prices.  Anti-social 
motives — the  acquisition  of  power,  the  suppression  of  com- 
petition, and  the  raising  of  prices,  have  been  set  forth  as 
the  reason  for  forming  combinations.  The  evils  resulting 
from  such  combinations  have  been  taken  for  granted  and 
all  the  efforts  put  forth  by  the  Government  have  been  to 
suppress  them,  and  to  maintain  competitive  conditions  in 
the  industrial  field.  In  the  application  of  the  law  no  attempt 
has  been  made  by  the  courts  to  enumerate  the  specific  acts 
or  practices  which  constitute  its  violation.  It  broadly  in- 
cluded all  monopolies  and  attempts  at  monopoly  by  control 
and  restraints  of  trade.  At  first,  the  Supreme  Court  was 
inclined,  as  in  the  Knight  case,  to  consider  the  presence  of 
monopoly  and  restraint  of  trade  as  being  shown  by  spe- 
cific acts,  but  later  the  effect  of  the  combination  as  a  whole 
was  considered.  Acts  or  contracts  that  considered  singly 
;were  lawful,  when  viewed  together  as  parts  of  a  plan  were 
(repeatedly  held  to  be  illegal.  It  was  usually  the  scope  of 
the  combination  and  its  power  to  suppress  competition  or  to 

r^  reate  monopoly  that  determined  its  legality  under  the  law. 
A  limitation  of  the  size  of  corporations  appealed  to 
some  people  as  the  best  way  of  preventing  monopolies.  This 
result  might  be  sought  either  by  limiting  the  actual,  phys- 
ical amount  of  capital  under  one  management  in  any  in- 
dustry, or  by  limiting  the  percentage  of  either  the  capital  or 
the  gross  business  of  an  industry  which  any  one  corporation 
could  control.  Congress,  while  agreed  upon  the  prevention 
of  monopoly,  has  never  fixed  a  size  limit  or  standard,  leaving 
this  to  the  courts  to  determine.  In  the  Knight  case,  the 
Supreme  Court  held  that  the  law  did  not  limit  or  restrict  the 
rights  of  corporations,  created  by  the  states,  in  the  acqui- 
sition, control,  or  disposition  of  property.1  "Bigness,"  how- 
ever seems  to  have  been  a  factor  in  the  Addyston  and  North- 
ern Securities  Company  decisions.  Mr.  Taft,  when  review- 
ing the  Sherman  law,  in  1910,  held  that  the  evil  aimed  at 
was  not  mere  bigness  of  enterprise  but  the  use  of  size  to  re- 
strain trade,  or  create  a  monopoly.  In  the  Standard  Oil 
1 156  U.  S.  16. 


The  Effect  of  Antitrust  Proceedings  291 

decision  (1911),  on  the  other  hand,  the  size  of  the  combi- 
nation was  emphasized,  the  Supreme  Court  maintaining  that 
the  unification  of  so  vast  a  power  and  control  in  the  New 
Jersey  Corporation  established  a  prima  facie  presumption  of 
a  combination  in  restraint  of  trade.  In  the  Tobacco  case, 
size  was  expressly  excluded  from  consideration  in  arriving 
at  the  decision,  but  the  manner  in  which  the  business  of  the 
trust  was  reorganized  implied  a  condemnation  of  its  size. 
In  the  Tobacco  dissolution,  for  the  first  time,  we  find  an  at- 
tempt to  approximate  a  standard  of  size.  All  previous  dis- 
solutions were  merely  legal  separations  of  the  combining 
corporations,  regardless  of  the  resulting  distribution  of  the 
business.  In  the  Tobacco  dissolution,  the  business  of  the 
trust  was  roughly  divided  so  that  no  one  corporation  should 
have  more  than  about  one-third  of  the  total  business  of  any 
one  branch  of  the  trade.  The  same  principle  was  followed 
in  the  dissolution  of  the  Powder  trust.  There  was  reduction 
in  the  size  of  the  business  unit  but  not  in  the  extent  of  con- 
trol, since  the  trust  interests  still  owned  a  large  part  of  the 
stocks  and  securities  of  the  new  companies  organized  to  take 
over  portions  of  the  business  controlled  by  the  trust. 

However,  progress  has  been  made  in  rendering  dissolu- 
tion more  effective.  The  Northern  Securities  dissolution 
was  merely  formal,  being  condemned  on  that  account  by  the 
dissenting  opinion  of  the  Supreme  Court,2  The  Standard  Oil 
dissolution  was  the  most  farcical  of  all.  Corporate  control 
was  exchanged  for  that  of  the  dominant  stockholders.  None 
of  the  bulwarks  upon  which  its  control  depended  were  re- 
moved. In  the  suits,  brought  under  the  commodity  clause 
legislation  of  1906,  against  the  railroad  and  coal  companies 
in  order  to  separate  these  interests,  the  same  kind  of  farci- 
cal dissolution  proceedings  was  in  evidence.  Only  a  legal 
separation  was  required.  Even  though  the  railroad  com- 
pletely owned  all  the  stock  of  a  coal  company  the  former  was 
held  to  be  interested  neither  directly  nor  indirectly  in  the 
latter  company.  There  was  more  effort  to  make  the  To- 
bacco trust  dissolution  effective.  The  business  of  this  com- 
bination was  reorganized  and  more  restrictions  were  placed 

2 193  U.  S.  373. 


Trust  Dissolution 

upon  the  defendants.  But  the  common  interest  of  these  de- 
fendants in  practically  all  the  trust  business  remained  with 
quite  easy  means  of  effecting  and  maintaining  a  community 
of  interest.  Large  inter-corporate  stock  holding  was  per- 
mitted by  the  Court.  This  latter  feature  has  been  forbid- 
den for  organizations  of  the  future  by  the  Clayton  Act.  In 
the  Powder  dissolution  the  control  of  the  defendants  was  les- 
sened still  more.  The  business  of  the  trust  was  reorganized 
and  shared  with  two  new  corporations,  as  was  done  in  the 
Tobacco  dissolution,  but  the  control  of  the  defendants  in 
the  new  corporations  was  further  reduced  in  this  instance  by 
the  fact  that  they  were  compelled  to  receive  in  payment 
one-half  of  the  price  in  bonds  and  half  of  the  remainder  in 
non-voting  stock,  thereby  reducing  the  inter-corporate  stock- 
holding control  to  one-fourth  of  the  capital  of  the  new  cor- 
porations and  decreasing  the  possibilities  of  a  community  of 
interest.  A  more  distinct  advance  was  made  in  the  disso- 
lution of  the  Union  Pacific  merger.  The  defendant  company 
which  held  46  percent  of  the  stock  in  the  properties  illegally 
joined  was  required  to  dispose  of  all  the  stock.  Practically 
one-third  of  it  was  disposed  of  by  sale  to  a  wholly  disinter- 
ested company,  while  the  remainder  was  distributed  among 
its  own  stockholders  in  proportion  to  their  individual  hold- 
ings but  only  upon  affidavit  of  no  intent  to  unite  its  control 
with  the  severed  properties.  In  the  dissolution  of  the  New 
Haven  monopoly  in  1914  the  ownership  of  the  parts  required 
to  be  disposed  of  was  distributed  among  different  sets  of  men. 
In  recent  years  there  has  been  more  insistence  on  the 
part  of  the  Government  for  a  real  dissolution  in  which  the 
ownership  of  the  parts  of  a  dissolved  combination  should 
be  divided  among  different  groups  of  men.  A  number  of 
these  cases  are  pending.  It  is  interesting  to  note  that  in  two 
recent  dissolution  decrees — the  Harvester  and  the  Eastman 
Kodak — the  lower  courts  ordered  a  division  of  the  business 
among  corporations  having  distinctly  separate  ownership. 
Such  a  dissolution  accompanied  with  restraining  injunction 
would  stand  in  great  contrast  to  dissolutions  like  those  in  the 
Northern  Securities,  Oil,  and  Tobacco  cases.  However, 
neither  of  the  above  decrees  have  been  passed  upon  by  the 


The  Effect  of  Antitrust  Proceedings  293 

Supreme  Court.  The  latter  court  rejected  this  principle 
in  some  of  the  earlier  dissolutions,  and  did  so  again  more 
recently  in  its  decisions  in  the  suits  to  dissociate  the  anthra- 
cite railroads  and  coal  companies  in  which  it  held  that  a  rail- 
road was  not  interested  directly  or  indirectly  in  the  mining 
of  coal  merely  because  it  owned  all  the  stock  of  the  coal  com- 
pany which  conducted  the  mining  operations.  Effective  dis- 
solution will  be  delayed  until  this  principle  or  the  one  sug- 
gested by  President  Wilson  is  adopted.3 

While  there  has  been  a  growing  tendency  to  reduce  the 
inter-corporate  ownership  of  stock  and  control,  and  although 
the  former  has  been  forbidden  in  the  future  by  the  recent 
trust  legislation,  the  crux  of  the  whole  problem  remains  in 
the  community  of  interest  formed  among  the  dominant 
stockholders.  This  is  a  form  of  trust  combination  made  pos- 
sible by  accumulated  fortunes  and  the  concentration  of 
wealth.  Even  the  prohibition  of  interlocking  directorates 
will  not  overcome  the, evil.  The  director  is  but  the  voice  of 
those  who  elect  him.  The  recent  legislation  forbidding  inter- 
locking directorates  will  doubtless  merely  increase  the  num- 
ber of  dummy  directors. 

Neither  Congress  nor  the  courts  have  attempted  to  over- 
come this  latest  form  of  the  trust.  President  Wilson  offered 
for  the  consideration  of  Congress  the  requirement  that  own- 
ers of  stock,  when  their  voting  power  in  several  companies, 
which  ought  to  be  independent  of  one  another,  would  consti- 
tute actual  control,  be  made  to  choose  in  which  company 
they  would  limit  their  voting  rights.4  Such  a  requirement, 
if  time  were  given  for  a  readjustment  of  the  few  present 
stock  holdings,  would  not  need  to  work  hardship.  It  would 
certainly  eliminate  a  host  of  abuses  and  be  a  long  step  for- 
ward, if  the  maintenance  of  competitive  conditions  in  indus- 
try be  the  goal.  It  is  needless  to  say  that  Congress  did  not 
follow  the  President's  suggestion  or  show  any  serious  inten- 
tion of  restricting  an  individual  in  the  exercise  of  his  power 
as  a  stockholder  in  any  number  of  concerns.  The  courts 
seem  to  consider  it  an  inalienable  right  of  the  individual  to 
hold  whatever  stock  he  pleases.  In  1914,  a  Circuit  Court  de- 

» See  p.  25.  "Ibid. 


£94*  Trust  Dissolution 

clared  that  no  Act  of  Congress  or  judicial  decision  has 
declared  it  to  be  illegal  for  an  individual  citizen  to  invest  his 
money  in  two  enterprises  merely  because  the  enterprises  may 
be  closely  connected.  This  was  the  decision  given  in  a  suit 
to  separate  the  anthracite  railroads  from  the  coal  companies. 
While  the  Supreme  Court  reversed  this  decision,  such  action 
was  on  the  ground  of  a  unity  of  management  existing  be- 
tween the  companies,  and  the  ownership  of  the  stock  by  the 
same  stockholders  was  specifically  sanctioned.5  As  long  as 
this  principle  is  sustained,  effective  dissolution  will  not  only 
be  delayed,  but  trust  formation  on  the  basis  of  common 
stockholding  will  be  further  stimulated.  Some  day  our  law 
makers  may  be  forced  to  take  a  bolder  step ;  they  will  not 
permit  any  supposed  right  of  private  property  to  serve  as  a 
bulwark  for  monopoly. 

No  satisfactory  solution  has  been  found  for  the  problems 
arising  in  connection  with  those  monopolies  due  to  the  own- 
ership of  natural  resources,  a  situation  well  illustrated  in 
the  aluminum  and  anthracite  coal  industries.  The  attempt 
to  free  the  latter  industry  from  monopoly  combination  with 
the  railroads  has  so  far  been  a  dismal  failure.  Even  if  the 
attempt  had  succeeded  a  community  of  interest  would  be  al- 
most inevitable  because  of  the  extreme  localization  of  the 
hard  coal  fields  and  because  of  the  already  concentrated  con- 
trol in  the  hands  of  a  few.  The  problem  of  public  ownership 
may  be  considered  in  determining  upon  a  policy  for  this  and 
similar  situations  where  scarcity,  localization,  or  other  cir- 
cumstances constantly  invite  the  creation  of  monopolistic 
control  over  natural  resources. 

Little  was  accomplished  prior  to  1914  toward  securing 
systematic  and  adequate  publicity  on  the  part  of  large  cor- 
porations. Occasional,  yet  important,  investigations  were 
made  by  the  Bureau  of  Corporations,  which  was  created 
largely  for  this  purpose.  The  Commissioner  of  this  Bureau, 
in  his  annual  report  for  1912,  reviewed  the  ten  years'  ac- 
complishment of  the  Bureau  and  reported  that  publicity  had 
been  hampered  and  restricted  by  the  limitations  of  the 
Charter  Act,  and  that  therefore  the  results  attained  were  not 

6  See  p.  175. 


Tlie  Effect  of  Antitrust  Proceedings  295 

a  fair  measure  of  what  might  be  expected  under  broader 
powers.  In  the  dissolution  decrees  for  the  trusts  dissolved 
no  provisions  for  publicity  subsequent  to  the  proceedings 
were  included,  and  no  adequate  way  was  provided  by  which 
it  could  be  ascertained  whether  the  decrees  were  effectively 
carried  out.  One  of  the  important  features  of  the  1914  legis- 
lation was  its  provision  for  publicity  and  investigation.  The 
need  for  this  has  been  imperative,  and  when  it  is  properly 
provided  this  publicity  will  go  far  toward  securing  efficiency 
of  corporations,  safety  to  investors,  needful  data  for  legis- 
lation, and  a  basis  for  dissolution  decrees  and  the  reorganiza- 
tion of  dissolved  corporations. 

Our  patent  laws  are  still  aids  to  trust  formation  and  ob- 
stacles to  trust  dissolutions.  Notwithstanding  the  fact  that 
as  a  nation  we  have  been  excelled  by  none  in  the  number  of 
inventions,  nearly  every  other  leading  nation  excels  us  in  the 
effort  to  control  and  to  secure  for  the  public  the  benefits  of 
patented  inventions.  A  number  of  trusts  have  been  described 
which  relied  solely  upon  the  monopoly  control  of  patents. 
Many  of  the  trusts  considered  have  taken  advantage  of  our 
patent  system  as,  for  example,  in  the  field  of  telephony,  pic- 
ture films,  cigars,  electric  lamps,  cash  registers,  shoe  machin- 
ery, and  petroleum  refining.  The  holder  of  a  patent  ob- 
tains over  the  invention  a  complete  control  which  was  ex- 
tended in  the  Dick  case,  decided  in  191S,  to  the  materials  used 
in  connection  with  it,  and  he  may  if  he  chooses  suppress  the 
invention  instead  of  marketing  it.  The  trusts  have  usually 
forestalled  competition  by  obtaining  control  of  the  patents 
in  the  industry  concerned  through  the  hiring  of  the  inven- 
tors, through  the  outright  purchase  of  the  patents,  or 
through  prolonged  court  litigation. 

No  provisions  were  included  in  the  trust  legislation  of 
1914  to  overcome  patent  abuses  and  evils,  except  to  prohibit 
the  use  of  exclusive  and  tieing  leases  which  required  the  use 
or  purchase  of  other  articles,  patented  or  impatented,  as  a 
condition  of  securing  certain  desired  goods.  Congress  might 
have  provided  that  a  patent  be  forfeited  when  it  was  com- 
bined with  another  patent  or  was  made  a  part  of  a  combina- 
tion. To  have  a  patent  become  void  if  not  used  is  surely  a 


296  Trust  Dissolution 


just  requirement.  Patent  monopoly  could  perhaps  be  fur- 
ther restricted  by  granting  a  royalty  right  to  inventors,  so 
that  any  one  could  manufacture  the  patented  article  under 
a  license  from  the  Government  by  paying  a  fixed  royalty. 
The  prohibition  against  the  use  of  tieing  clauses  in  connec- 
tion with  patents  is  necessary  to  prevent  the  extension  of 
patent  control  to  cover  the  use  or  sale  of  unpatented  things. 
The  position  taken  by  the  Supreme  Court  in  the  Dick  case 
was  apparently  reversed  in  April  1917,  by  denying  the  right 
of  the  maker  of  a  patented  motion  picture  machine  to  com- 
pel purchasers  to  use  only  certain  unpatented  films  and  by 
denying  the  right  of  the  maker  of  a  patented  phonograph  to 
fix  the  price  at  which  the  machine  would  reach  the  ultimate 
consumer. 

The  need  of  a  change  in  the  means  and  methods  of  carry- 
ing out  the  antitrust  policy  has  long  been  felt.  The  system 
of  occasional  prosecutions,  dependent  upon  Attorney  Gen- 
erals, who  in  turn  are  appointed  by  the  Presidents  whose 
attitudes  toward  the  trusts  and  the  enforcement  of  the  trust 
laws  are  various  and  changeable,  should  be  replaced  by  a 
system  which  will  bring  continuous  administrative  action. 
In  many  of  the  trust  suits,  after  gross  violations  of  the  laws 
were  uncovered,  years  of  judicial  deliberation  and  delay 
passed  before  a  final  decree  was  approved.  As  a  result  of 
administrative  delay  great  financial  loss  to  consumers  and  a 
stronger  entrenchment  of  the  trust's  position  in  the  industry 
have  frequently  occurred.  Many  of  the  important  trusts 
condemned  in  the  lower  courts  could  well  afford,  as  nearly  all 
did,  to  appeal  and  thereby  prolong  the  litigation,  which  in 
many  cases  ranged  from  three  to  five  years,  or  more,  even 
though  there  was  no  hope  of  a  more  favorable  decree,  in 
order  to  continue  the  profits  during  the  delay  attending  ap- 
peal. Indeed,  the  time  required  for  investigation  and  prose- 
cution to  a  final  decree  was  frequently  so  long  as  to  invite 
the  formation  of  combinations  by  promoters  who  had  no  hope 
of  escaping  a  dissolution  decree,  but  who  determined  to  make 
what  they  could  before  such  dissolution  could  be  accom- 
plished. It  was  a  case  of  all  to  gain  and  nothing  to  lose, 
for  it  is  difficult  to  point  to  an  important  dissolution  that 


The  Effect  of  Antitrust  Proceedings  297 

left  the  combining  interests  in  a  less  favorable  position  than 
that  they  occupied  before  combining.  Since  there  is  no  at- 
tempt at  reparation,  gross  violation  of  the  law  bringing  in- 
jury to  other  producers  and  the  public  should  be  speedily 
suppressed.  Here,  as  elsewhere,  promptness  would  beget  a 
more  wholesome  fear.  The  earlier  the  decision  the  less  dras- 
tic would  need  to  be  the  action  to  secure  the  same  effect.  One 
object  in  establishing  the  Trade  Commission  was  to  meet  this 
need. 

This  study  has  shown  the  large  part  played  by  unfair 
methods  of  competition  in  building  up  and  maintaining  mo- 
nopolistic control.  Such  methods  have  been  relied  upon  far 
more  than  superior  efficiency,  and  have  frequently  shielded 
inefficiency.  The  following  unfair  methods  of  competition 
have  been  declared  by  the  federal  courts  to  be  illegal  under 
the  Sherman  law:  price  cutting,  the  use  of  "fighting  ships," 
bogus  independents,  exclusive  and  tieing  contracts,  inducing 
breach  of  competitors'  contracts,  enticement  of  employees 
from  the  service  of  a  competitor,  bribery  and  espionage,  the 
requirement  of  the  use  of  certain  articles  as  a  condition  of 
the  purchase  or  use  of  other  articles,  boycotting  by  trade 
associations  through  the  use  of  black  or  white  listing  meth- 
ods. Additional  unfair  methods  which  have  been  prohibited 
without  comment  by  decrees  are  as  follows:  "fighting 
brands"  and  "flying  squadrons,"  defamation  and  disparage- 
ment of  competitors  and  their  goods,  preventing  competitors 
from  obtaining  raw  materials  and  machinery,  retention  of 
competitors'  property,  price  control,  prevention  of  sales, 
limitation  of  output,  allotment  of  customers  and  division  of 
territory,  the  purchase  of  stock  for  the  purpose  of  harassing 
a  competitor,  and  the  use  of  coercion,  threats  and  intimida- 
tion, including  threats  to  sue  for  infringements.  Other  fed- 
eral legislation  partly  designed  against  unfair  methods  in- 
cludes the  Interstate  Commerce  legislation,  which  makes  re- 
bates and  discriminations  illegal,  the  Clay  ton  Act,  which  makes 
discrimination  in  price  and  the  use  of  restrictive  sales  and 
leases  illegal,  and  the  Pure  Food  and  Drugs  Act,  which  inci- 
dently  protects  honest  dealers  from  the  fraudulent  competi- 
tion of  unscrupulous  rivals.  There  are  still  other  unfair 


298  Trust  Dissolution 

methods  held  illegal  at  common  law  or  declared  illegal  by 
the  various  state  laws.  But  by  far  the  most  comprehensive 
is  the  Federal  Trade  Commission  Act,  which  makes  unfair 
methods  of  competition  in  commerce  illegal  and  empowers 
and  directs  the  Trade  Commission  to  prevent  such  methods. 
This  law  makes  no  attempt  to  enumerate  the  specific  acts  or 
practices  constituting  illegal  methods,  but  leaves  it  for  the 
Commission  to  decide  when  a  practice  is  unlawful.  Such  a 
list  would  be  inexhaustible  and  some  of  the  known  methods 
defy  description.  The  prevention  of  such  methods,  which  is 
one  of  the  most  important  duties  of  the  Commission,  is  one 
of  the  best  ways  to  prevent  the  development  of  monopoly. 

Although  unfair  methods  are  still  practiced,  it  cannot 
be  doubted  that  competition  is  more  refined  and  is  attended 
with  fewer  cut-throat  and  predatory  practices  than  was  the 
case  two  decades  ago.  From  every  quarter — publicity  re- 
quirements, federal  and  state  legislation  and  investigations, 
court  injunctions,  dissolution  decrees,  Commerce  and  Trade 
Commissions,  development  of  Business  ethics — restraining  in- 
fluences have  been  exerted  against  the  use  of  unfair  methods, 
and  in  view  of  the  large  part  played  by  unfair  methods  in 
building  up  and  maintaining  monopolistic  control,  this 
change  is  one  of  the  surest  signs  of  progress  toward  solving 
the  trust  problem. 

Since  the  courts  pass  upon  the  legality  of  combinations 
at  the  time  the  suits  are  filed,  it  is  significant  to  point  out 
how  combinations  began  to  alter  their  affairs  and  conduct  as 
soon  as  a  suit  was  impending.  This  is  illustrated  by  the  gen- 
eral abandonment  of  rebates  by  the  Standard  Oil  Company, 
the  discontinuance  of  the  Gary  Dinners  by  the  Steel  Corpora- 
tion, the  breaking  up  of  the  tin  plate  contracts  by  the  Amer- 
ican Can  Company,  and  by  the  division  of  assets  and  busi- 
ness by  the  International  Harvester  Company.  In  most 
cases  the  defendants  at  the  time  of  the  trial  had  abandoned 
the  more  important  unfair  methods  of  competition. 

One  of  the  most  serious  problems  which  appeared  in 
connection  with  trust  prosecutions  was  to  find  a  proper 
method  of  disintegrating  combinations  adjudged  unlawful 
and  of  reorganizing  the  business  on  a  competitive  basis.  The 


The  Effect  of  Antitrust  Proceedings  299 

courts  were  not  adapted  for  such  reconstruction  and  many 
of  the  dissolutions  are  failures,  both  in  theory  and  practice. 
Indeed,  the  failure  of  our  trust  policy  has  been  chiefly  due 
to  the  manner  of  accomplishing  dissolution  rather  than  to 
any  inherent  difficulty  in  restoring  competitive  conditions. 
The  dissolution  of  a  modern  trust  involves  economic  rather 
than  legal  knowledge.  In  no  case  was  a  receivership  actu- 
ally established,  the  nearest  approach  to  it  being  in  the 
Union  Pacific  and  New  Haven  dissolutions  where  trustees  ' 
were  appointed  to  hold  and  transfer  the  stocks  required  to 
be  disposed  of.  The  courts  have  frequently  asked  the  de- 
fendants to  present  their  plan  of  dissolution.  It  is  true  that 
they  have  not  always  accepted  the  first  plan  presented  and 
have  even  wholly  rejected  some  plans  presented  by  the  defen- 
dants, as  in  the  Great  Lakes  Towing,  Eastman  Kodak,  and 
Corn  Products  Refining  cases,  but  in  many  others,  including 
some  of  the  most  important  cases,  little  or  no  attention  was 
given  to  other  plans  or  to  the  objections  which  were  raised 
against  the  plan  submitted,  as  in  the  Tobacco  dissolution. 
The  dissolutions,  particularly  of  the  Securities,  Oil,  and  To- 
bacco companies,  have  convinced  the  nation  of  the  need  of 
a  federal  administrative  body  with  adequate  powers  of  in- 
vestigation, publicity,  and  administration,  whose  members 
are  in  close  touch  with  business  affairs  and  acquainted  with 
the  commercial  situation.  The  Federal  Trade  Commission 
was  designed  to  meet  this  need,  but  it  was  left  to  the  option 
of  the  courts  to  call  upon  the  Commission  for  its  services  and 
they  have  not  so  far  shown  much  inclination  to  make  use  of 
this  body.  Apparently  in  only  one  case  has  the  court  called 
upon  the  Commission  and  in  at  least  one  case  they  have  re- 
fused a  request  of  the  defendants  to  leave  the  plan  of  disso- 
lution to  the  Commission. 

The  increasing  number  of  consent  decrees  in  equity,  and 
oi  pleas  of  guilty  or -no  contest  to  indictments  may  have  sev- 
eral interpretations.  From  the  summary  above,  it  will  be 
seen  that  of  the  suits  in  equity  the  Government  won  judg- 
ments in  twenty-nine,  and  in  fifteen  it  secured  consent  decrees. 
A  number  of  the  latter  have  since  been  entered.  This  in- 
crease may  mean  that  violators  of  the  law  fear  the  results  of 


300  Trust  Dissolution 

prosecution  more  than  formerly  and  decide  to  avoid  costs  and 
public  exposure;  or  it  may  indicate  that  they  are  able  to 
secure  more  favor  able*  decrees  by  not  compelling  the  Gov- 
ernment to  carry  on  a  long  trial  which  always  is  uncertain 
as  to  the  outcome;  or  it  may  mean  that  the  defendants  do 
not  have  enough  at  stake  to  make  it  worth  while  to  contest. 
There  is  reason  to  believe  that  the  first  motive  has  exerted 
an  influence  because  important  consent  decrees  became  more 
numerous  as  trust  prosecution  became  more  vigorous  and 
effective.  If  this  conclusion  is  correct  it  is  evident  that  the 
aim  of  the  trust  policy  is  being  realized.  However,  judging 
from  the  nature  of  many  of  i^he  consent  decrees,  the  second 
motive  must  have  moved  some  of  the  defendants,  including 
some  of  the  most  flagrant  violators  of  the  trust  laws,  who 
secured  as  favorable  decrees  as  could  possibly  be  hoped  for. 
They  usually  suffered  no  division  of  their  business  nor  sacri- 
ficed any  of  the  advantages  illegally  obtained,  but  merely 
promised  to  be  good  thereafter  under  restraining  orders  en- 
joining the  use  of  certain  unfair  methods  formerly  practiced. 
The  Cash  Register  decree  in  1916  is  a  good  example.  No 
doubt  the  third  motive  was  dominant  in  some  cases ;  there  was 
not  enough  at  stake  to  pay  for  a  contest. 

Restraining  provisions  have  usually  constituted  a  large 
part  of  dissolution  decrees  and  have  frequently  been  the  only 
relief  given.  While  there  has  been  a  tendency  to  increase  the 
scope  of  the  injunctions,  the  insufficient  scope  given  to  them 
has  been  frequently  pointed  out  in  preceding  pages.  Since 
in  many  cases  the  injunction  is  the  only  relief  given  it  is  im- 
portant that  it  be  made  sufficiently  inclusive  to  prevent  the 
recurrence  of  the  unfair  practices.  Many  of  the  dissolution 
decrees  could  have  been  made  much  more  effective  by  includ- 
ing certain  restraining  provisions,  and  the  failure  to  do  so 
is  serious  in  view  of  the  length  of  time  and  costly  investiga- 
tions and  prosecution  required  to  reconvict.  Moreover,  it 
is  improbable  that  the  trusts  will  ever  allow  to  exist  for  use 
in  future  prosecutions  such  condemning  evidence  as  was  ob- 
tained in  the  first  trials.  These  considerations  all  point  to 
the  limitations  of  the  injunction  as  the  sole  measure  of  relief, 
as  was  done  in  the  "bath  tub,"  cash  register,  and  nearly  all 


The  Effect  of  Antitrust  Proceedings  301 

the  consent  decrees.  A  corporation  which  has  created  and 
maintained  a  monopoly  through  unfair  practices  will,  if  left 
in  control,  find  means  through  indirect  and  secret  methods 
to  evade  any  injunctive  restrictions  that  may  be  imposed, 
without  apparent  violation  of  them  or  the  law,  and  the  force 
of  its  size  and  of  established  trade  connections,  unfairly  at- 
tained, will  keep  competitors  at  a  great  disadvantage.  It 
is  difficult  to  prove  most  violations  of  the  injunctions  and 
in  the  few  cases  where  parties  have  been  found  guilty  they 
have  been  rather  lightly  dealt  with.  There  is  also  an  in- 
creasing tendency  on  the  part  of  the  courts  to  retain  juris- 
diction of  the  cases  passed  upon,  as  is  illustrated  in  the 
Harvester,  American  Can,  Eastman  Kodak,  and  other  cases. 
As  contrasted  with  this  attitude,  the  Court,  at  the  time  of 
the  Tobacco  dissolution,  refused  the  petition  of  the  Govern- 
ment to  retain  further  jurisdiction  of  the  case.  The  recent 
action  of  the  Trade  Commission  in  agreeing  to  fix  the  price 
of  print  paper  also  marks  an  advanced  and  significant  step 
in  the  direction  of  exercising  greater  control  over  industrial 
corporations. 

Frequent  references  have  been  made  in  previous  pages  to 
the  Federal  Trade  Commission ;  the  need  of  such  a  body,  its 
creation,  powers  and  duties,  and  the  various  reports  prepared 
by  it.  The  failure  to  give  it  more  power  independent  of  the 
courts  makes  hazardous  any  prediction  of  its  future,  but  it 
is  not  probable  that  the  subordination  will  deprive  the  Com- 
mission of  its  larger  usefulness.  The  interest  shown  in  the 
trust  legislation  and  in  the  appointment  of  the  members  of 
the  Commission  and  its  work  is  manifesting  itself  in  the  pub- 
lic knowledge  which  may  secure  for  it  powers  large  enough  to 
maintain  competitive  conditions. 

In  addition  to  completing  a  number  of  extensive  investi- 
gations previously  begun  by  the  Bureau  of  Corporations, 
the  Commission  has  prepared  numerous  reports  dealing  with 
such  subjects  as  lumber,  silk,  gasoline,  pipe  lines,  print-pa- 
per, bituminous  and  anthracite  coal,  fertilizer,  and  it  has 
also  made  a  study  of  foreign  trade  conditions.  The  spirit 
and  scientific  method  shown  in  its  investigations  promise 
valuable  permanent  results.  The  most  important  duty  of 


302  Trust  Dissolution 

the  Commission  is  to  prevent  unfair  competition.  The  con- 
stant investigations  and  publications,  and  the  occasional 
prosecutions  by  the  Commission  are  of  inestimable  value  in 
suppressing  unfair  methods.  Its  policy  of  publicity  in  this 
connection  accomplishes  three  purposes.  The  decisions  of 
the  Commission  furnish  information  and  guidance  to  the 
public ;  they  protect  legitimate  business  against  unfounded 
complaints;  and  bring  the  disapproval  of  public  opinion 
against  those  who  refuse  to  abandon  unfair  methods.  Ap- 
plications for  relief  where  complaints  are  made  without 
cause  receive  no  publicity;  where  the  unfair  methods  are 
voluntarily  stopped  the  facts  and  rulings  of  the  Commis- 
sion, but  no  names,  are  published;  and  in  all  cases  reaching 
the  stage  of  formal  proceedings  full  publicity  is  given. 
Thus  there  is  publication  of  the  rulings  in  each  case  as  it 
is  disposed  of,  which  is  intended  to  furnish  criteria  for  the 
determination  of  legal  and  illegal  practices  in  trade.  These 
decisions  are  known  as  conference  rulings.  During  the  first 
year  several  hundred  complaints  were  filed.  Many  of  these 
were  without  foundation  and  many  others  concerned  things 
beyond  the  jurisdiction  of  the  Commission.  In  many  cases 
the  unfair  methods  were  voluntarily  discontinued.  In  very 
few  cases  has  it  been  necessary  for  the  Commission  to  insti- 
tute formal  proceedings.  The  constant  restraining  influence 
exerted  by  this  Commission,  endowed  as  it  is  with  adminis- 
trative and  quasi- judicial  powers,  though  perhaps  not  en- 
tirely adequate  at  present,  nevertheless  greatly  assists  in 
maintaining  competitive  conditions  in  the  industrial  field. 

The  ineffectiveness  of  many  of  the  dissolutions  noted  does 
not  necessarily  condemn  the  antitrust  policy  nor  prove  the 
impossibility  of  restoring  competitive  conditions  among  the 
parts  into  which  a  combination  has  been  divided.  For 
many  years  the  trust  law  was  virtually  nullified  by  the  in- 
terpretation placed  upon  it  and  by  the  defective  manner  of 
its  enforcement.  More  recently  the  failure  to  obtain  better 
positive  results  has  been  due  to  the  manner  of  accomplish- 
ing dissolution  rather  than  to  any  inherent  difficulty  in  re- 
storing competitive  conditions.  Our  best  efforts  and  meth- 
ods have  not  always  been  used.  Flagrant  violations  of  the 


The  Effect  of  Antitrust  Proceedings  303 

law  have  not  been  handled  with  enough  promptness  and  se- 
verity; the  chief  offenders  have  not  been  punished  nor  de- 
prived of  advantages  and  gains  illegally  obtained;  and  in 
few  cases  has  the  control  been  divided  among  separate 
groups  of  men. 

But  the  efficacy  of  the  law  cannot  be  measured  by  the 
tangible  results  obtained.  The  good  resulting  from  the 
antitrust  policy  has  been  largely  preventive.  Trusts  exist- 
ing in  violation  of  the  law,  even  though  not  actually  prose- 
cuted, hesitated  to  expand  as  they  would  otherwise  have 
done.  The  decline  of  efforts  to  create  dominating  concerns 
in  the  various  industries  is  an  indication  of  what  has  been 
accomplished.  These  results  which  can  not  be  measured 
have  been  largely  overshadowed  by  the  conspicuous  in- 
effectiveness of  several  important  dissolutions  and  the  long 
delay  or  failure  to  condemn  certain  other  notorious  trusts. 
To  prove  monopolistic  intent  or  attainment  under  compli- 
cated modern  industrial  conditions  is  very  difficult,  but  it 
is  easier  than  to  distinguish  constantly  between  "good"  and 
"bad"  trusts,  especially  since  the  latter  begin  to  make  a 
temporary  reform  in  their  conduct  when  the  first  steps  in 
the  long  process  of  proving  them  bad  are  about  to  be  under- 
taken. In  recent  years  there  is  growing  evidence  of  better 
results,  both  negative  and  positive,  and  perhaps  a  continued 
rigorous  prosecution  of  unfair  restraints  of  trade  and  of 
monopolistic  combinations,  accompanied  by  a  few  real  dis- 
solutions, would  prevent  the  more  obvious  unfair  uses  of 
monopolistic  control. 


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COURT  DECISIONS  AND  DECREES 

Bement  vs.  National  Harrow  Company,  186  U.  S.  70. 
City  of  Atlanta  vs.  Chattanooga  Foundry  &  Pipe  Works,  203 
U.  S.  390. 


308  Trust  Dissolution 

Continental  Wall  Paper  Company  vs.  Voight,   148   Fed.   Rep., 

938;  212  U.  S.  227. 

Dr.  Miles  Medical  Company  vs.  Park,  220  U.  S.  373. 
Great  Atlantic   &  Pacific   Tea   Company  vs.    Cream   of  Wheat, 

224  Fed.  Rep.  566;  227  Fed.  Rep.  46. 
Harriman  vs.  Northern  Securities  Company,  132  Fed.  Rep.  464; 

134  Fed.  Rep.  331;  197  U.  S.  244. 
Hartman  vs.  John  D.  Parks  &  Sons  Company,  145  Fed.  Rep. 

358;  153  Fed.  Rep.  24. 
Loewe  vs.  Lawlor,  130  Fed.  Rep.  633;  142  Fed.  Rep.  216;  148 

Fed.  Rep.  924;   187   Fed.   Rep.   522;  209  Fed.  Rep.  721; 

208  U.  S.  283;  235  U.  S.  522. 
U.  S.  vs.  Addyston   Pipe  &  Steel  Co.,  78   Fed.   Rep.   712;   85 

Fed.  Rep.  112;  85  Fed.  Rep.  271;  175  U.  S.  211. 
U.  S.  vs.  American  Can  ,Company,  230  Fed.  Rep.  859;  234  Fed. 

Rep.  1019. 
U.  S.  vs.  American  Tobacco  Co.,  164  Fed.  Rep.  700;  221  U.  S. 

106;  191  Fed.  Rep.  371. 
U.  S.  vs.  Anderson,  171  U.  S.  604. 
U.  S.  vs.  Armour  &  Co.,  142  Fed.  Rep.  808. 
U.  S.  vs.  Chesapeake  &  Ohio  Fuel  Co.,  105  Fed.  Rep.  93;  115 

Fed.  Rep.  610. 
U.  S.  vs.  Coal  Dealers'  Association  of  California,  85  Fed.  Rep. 

252. 

U.  S.  vs.  Corn  Products  Refining  Company,  234  Fed.  Rep.  964. 
U.  S.  vs.  Debs,  64  Fed.   Rep.   724;    158   U.   S.   564. 
U.  S.  vs.  Delaware,  Lackawanna  Railroad  Co.,  213  Fed.  Rep. 

240;  238  U.  S.  516. 

U.  S.  vs.  Du  Pont  de  Nemours  &  Co.,  188  Fed.  Rep.  127. 
U.  S.  vs.  Eastern   Retail  Lumber  Association,  234  U.   S.   600. 
U.  S.  vs.  Eastman  Kodak  Co.,  226  Fed.  Rep.  62;  230  Fed.  Rep. 

522. 
U.  S.  vs.  Knight  Co.,  60  Fed.  Rep.   306;  60   Fed.   Rep.  934; 

156  U.  S.  1. 
U.  S.  vs.  Great  Lakes   Towing   Co.,  208    Fed.   Rep.   733;   217 

Fed.  Rep.  656. 

U.  S.  vs.     Greenhut,  50  Fed.  Rep.  469. 
U.  S.  vs.  Hopkins,  171  U.  S.  578. 

U.  S.  vs.   International  Harvester  Co.,  214  Fed.  Rep.  987. 
U.  S.  vs.  Joint  Traffic  Association,  171  U.  S.  505. 
U.  S.  vs.  Kellogg  Toasted  Corn  Flakes  Co.,  222  Fed.  Rep.  725. 
U.  S.  vs.  Keystone  Watch  Case  Co.,  218  Fed.  Rep.  503. 


Bibliography  309 

U.  S  vs.  Lake   Shore   &   Michigan   Southern   Railway   Co.   203 

Fed.  Rep.  295. 
U.  S.  vs.  Lehigh  Valley  Railroad  Co.,  225  Fed.  Rep.  399;  234 

Fed.  Rep.  683. 
U.  S.  vs.  McAndrews  &  Forbes   Co.,   149   Fed.   Rep.   823;   212 

U.  S.  585. 
U.  S.  vs.  Motion  Picture  Patents  Co.,  225  Fed.  Rep.  800;  230 

Fed.  Rep.  541. 
U.  S.  vs.  New   Departure   Manufacturing   Co.,   204   Fed.   Rep. 

107. 
U.  S.  vs.  Northern    Securities    Co.,    120    Fed.    Rep.    721;    193 

U.  S.  197. 

U.  S.  vs.  Patten,  187  Fed.  Rep.  664;  226  U.  S.  525. 
U.  S.  vs.  Patterson,    55    Fed.    Rep.    605;    59    Fed.    Rep.    280; 

(second  case)  201  Fed.  Rep.  697;  222  Fed.  Rep.  599;  238 

U.  S.  635. 

U.  S.  vs.  Quaker  Oats  Co.,  232  Fed.  Rep.  499. 
U.  S.  vs.  Reading  Company,  183  Fed.  Rep.  427;  226  U.  S.  324; 

228  U.  S.  158;  (second  case)  226  Fed.  Rep.  229. 
U.  S.  vs.  Reardon  &  Sons  Co.,  191  Fed.  Rep.  454. 
U.  S.  vs.   Rockefeller  et  al.,  222  Fed.  Rep.  534. 
U.  S.  vs.  Southern    Wholesale   Grocers'    Association,    207    Fed. 

Rep.  434. 
U.  S.  vs.  Standard  Oil  Co.  of  New  Jersey,  152  Fed.  Rep.  290; 

173  Fed.  Rep.  177;  221  U.  S.  1. 
U.  S.  vs.  Standard  Sanitary  Manufacturing  Co.,  191  Fed.  Rep. 

172;  226  U.  S.  20. 

U.  S.  vs.  Steers  et  al.,  192  Fed.  Rep.  1. 

U.  S.  vs.  Swift  &  Co.,  122  Fed.  Rep.  529;  196  U.  S.  375;  (sec- 
ond case)   188  Fed.  Rep.  92. 
U.  S.  vs.  Terminal  Association  of  St.  Louis,  197  Fed.  Rep.  446; 

154  Fed.  Rep.  268;  224  U.  S.  383;  236  U.  S.  194. 
U.  S.  vs.  Missouri  Freight  Ass'n,  166  U.  S.  290. 
U.  S.  vs.  Union   Pacific   R.    R.    Co.,   188    Fed.    Rep.    102;   226 

U.  S.  61 ;  226  U.  S.  470. 
U.  S.  vs.  United  Shoe  Machinery  Co.,  222  Fed  Rep.  349;  227 

Fed.  Rep.  507. 

U.  S.  vs.  Steel  Corporation,  223  Fed.  Rep.  55;  240  U.  S.  442. 
U.  S.  vs.  Whiting,  212  Fed.  Rep.  466. 
U.  S.  vs.  Winslow  et  al.,  195  Fed.  Rep.  578;  227  U.  S.  202. 


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